Annual Report 2014 PERFORMANCE & GROWTH The International Building Materials Contents Group
Page 2 Chairman’s Introduction
Strategy Review
4 Chief Executive’s Introduction 7 Strategic Report 10 Business Model 14 Measuring Performance 17 Sustainability and Governance
Business Performance Review
22 Finance Director’s Introduction 26 Operational Snapshot 28 Europe 38 The Americas CRH provides building materials 48 Asia across the spectrum of the construction industry – from building Governance foundations to frame and roofing,
51 Board of Directors to fitting out the interior space and 54 Corporate Governance Report improving the exterior environment, 72 Directors’ Remuneration Report on-site works and infrastructural 96 Directors’ Report projects, our materials and products are used extensively. Financial Statements
101 Independent Auditor’s Report 104 Consolidated Financial Statements 108 Accounting Policies 115 Notes on Consolidated Financial Statements
Other Information
158 Shareholder Information 160 Management 162 Principal Subsidiary Undertakings 166 Principal Equity Accounted Investments 167 Group Financial Summary 168 Index The value created from our strategic approach translates into superior growth which has enabled our shareholders to enjoy a euro compound annual Total Shareholder Return (TSR) of 15.7% since our formation in 1970.
We are committed to improving the built environment and we understand the wider impact our businesses can make in supporting human activity through the delivery of superior building materials and products for use in buildings, roads, public spaces, infrastructure and other construction areas. Our geographic footprint is wide. We operate in 34 countries and are the largest building materials company in North America, a regional leader in Europe, and have strategic positions in Asia.
For over four decades, CRH has developed and implemented a proven model of business improvement. By building better businesses across our international operations, we have grown to be a leader in the global building materials industry. A Fortune 500 ranked company, CRH is a constituent member of the FTSE 100 index and the ISEQ 20. Our shares are listed on the London and Dublin stock exchanges, and on the New York stock exchange in the form of American Depositary Shares.
CRH 1 34 countries 3,300 locations 76,000 people 15 billion tonnes of Chairman’s Introduction aggregates reserves Dear Shareholder, In the Chief Executive’s introduction to last year’s Annual 300 million Report, Albert Manifold set out the areas of focus for tonnes of management in 2014. He highlighted dynamic portfolio manufactured management together with maintaining CRH’s traditional tight cost control, capital discipline and focus on returns product as being key to driving growth and to rebuilding margins in the coming years. 115,000 A significant amount of progress has been made in the past Distribution 12 months, which is reflected in the results and performance for 2014. In particular, we are pleased with progress in the SKUs multi-year divestment programme and the related reshaping of the Group’s portfolio. The Group’s financial strength was further enhanced during the year by two bond issuances, co-ordinated by Maeve Carton, our Finance Director, and her team, in the amounts of €600 million and CHF330 million. The record low coupons achieved by the Group for these bonds reflect our track record in debt markets and the value that results from our investment grade credit ratings.
In respect of 2014, the Board is recommending a final dividend of 44c per share. If approved at the 2015 Annual General Meeting, this will maintain the full-year dividend at 62.5c per share. During the last year, my non-executive colleagues and I have spent a considerable amount of time working with the executive Directors and the wider management team on reviewing and refining the Group’s strategy in the context of
Silver Towers, New York City New York Silver Towers, the evolution of key markets and products over time and in setting the priorities for the Group. On 1 February 2015 we announced that CRH had entered into a binding commitment to acquire certain assets from Lafarge S.A. (“Lafarge”) and Holcim Limited (“Holcim”) for a total enterprise value of €6.5 billion, subject to (i) CRH shareholder approval at an Extraordinary General Meeting to be held on 19 March 2015; (ii) the successful completion of the proposed merger
2 CRH of Lafarge and Holcim; and (iii) the completion of certain made by the Secretariat. In doing so, we maintain our initial local reorganisations by Lafarge and Holcim in advance of assessment that the case is ill-founded and that the proposed the acquisition. The Board believes that this acquisition, fine in respect of the Group is unjustified. which arises from regulatory requirements for industry Two new non-executive Directors joined the Board in recent deconsolidation in connection with the merger of Lafarge months. Pat Kennedy was appointed in January 2015 while and Holcim, represents a compelling strategic opportunity Lucinda Riches has been appointed with effect from 1 for the Group, and that our financial, capital and operational March 2015. Their biographies, along with those of the rest discipline has positioned the Group to take advantage of this of the Board are set out on pages 51 to 53. Further details unique opportunity at this time. The placing of approximately on the on-going process of Board renewal are set out in the 74 million shares in CRH plc, which completed on 5 February Nomination & Corporate Governance Committee Report on 2015, raised €1.6 billion as part of the financing of this pages 66 and 67. acquisition. All Directors will retire at the Annual General Meeting on In 2015, in addition to the integration plan for the Lafarge / Thursday, 7 May 2015, with those eligible offering themselves Holcim assets, on the approval of shareholders, the Board for re-election. I strongly recommend that shareholders vote in will continue to focus on talent management, cyber security, favour of each of the individuals putting themselves forward and working towards the achievement of sustainability, safety for re-election. and environmental priorities. In relation to safety, 2015 will see the introduction of a new Chairman’s award for safety As part of the Board’s planned renewal process, John Kennedy excellence in the Group. and Dan O’Connor will step down from the Board at the conclusion of the 2015 Annual General Meeting on 7 May 2015. During 2014, the Board redoubled its ongoing focus on the On behalf of the Board, I would like to thank John and Dan for area of compliance and ethics to ensure that CRH’s processes their commitment and great service to CRH over many years. are robust and in line with best practice across the Group. In the current training cycle, over 32,000 employees have Finally, I would like to take the opportunity to thank Albert and participated in Code of Business Conduct training and a his team for their significant achievements over the past year. further 11,000 have undertaken advanced instruction on the prevention of breaches of competition law, anti-bribery and corruption laws. We remain vigilant in our business practices Nicky Hartery, Chairman in this area and are responsive to all regulatory agencies. February 2015 Notwithstanding this work, as we announced in May 2014 the Swiss Competition Commission has an open investigation in respect of practices in the sanitary building products sector in Switzerland and its Secretariat has recommended that the industry, of which certain CRH group companies are members, be fined. Engagement with the Swiss Competition Commission is ongoing and CRH is responding vigorously to the allegations
CRH 3 Strategy Review
Chief Executive’s Introduction
When I joined CRH in 1998, I quickly learned that a Throughout recent times, the Group has maintained its philosophy of business improvement is ingrained in the commitment to ongoing cost control, strong cash generation history of the Group. At CRH, we seek to build better efficiency and disciplined financial management. Further businesses each and every day. As the construction industry progress was achieved in these areas in 2014 including an emerges from a tumultuous few years, our approach has never additional €118 million of targeted cost savings delivered by been more relevant and there is nowhere I would rather be at year-end. this moment in time than in this Group, in this industry, at The reorganisation of our European businesses was largely this point in the business cycle. completed during the year and we now have an integrated 2014 was a year of good progress for CRH. We were able to use heavyside materials and products organisation that is the underlying strength of our business to capitalise on the providing synergies across our operating plant network in recovering markets and deliver a return to profit and margin European markets. growth. Development spend in 2014 was €0.19 billion on This progress was made possible by the hard decisions and 21 transactions, a lower spend than in previous years. hard work undertaken by the Board, management and staff During 2014 we completed a detailed review of our portfolio of CRH over the course of the previous seven years since the and commenced a multi-year divestment programme, of onset of the global financial crisis. As a result of this, the businesses which no longer meet our returns and growth Group ended 2014 in a position of real strength across our key criteria, or for which we believe CRH is no longer the best metrics – strategic, operational and financial. long-term owner. We remain focussed on optimising our portfolio to meet our financial objectives and prioritising the It is particularly pleasing to report that improvements allocation and reallocation of capital as we reset for growth in performance were achieved last year across all of our and restore margins and returns to peak levels. Divisions, leading to a double-digit percentage increase in EBITDA. Portfolio Management is now embedded in our business model as a core competency and a key enabler of value The year began well in Europe, aided by favourable early- creation within the Group. The discipline of this process season weather conditions compared with the prolonged encourages optimal capital efficiency and provides new winter of the previous year. Conversely, first-half trading in opportunities for investment and acquisition, the drivers of the Americas was impacted by very severe weather conditions value creation in our business. for a second consecutive year. However, strengthening economic recovery in the United States drove construction On 1 February 2015, the Group announced that it had activity as the year progressed and enabled our Americas entered into a binding commitment to acquire certain businesses to perform strongly in the second half, when we assets from Lafarge and Holcim for an enterprise value of began to see an easing of trends in Europe. €6.5 billion. As noted by the Chairman in his review on pages 2 and 3 the transaction is subject to CRH obtaining Like-for-like sales were ahead by 5% in the first half of the shareholder approval and certain other conditions. Assuming year and rose by 3% in the second, resulting in a full-year these conditions are satisfied, we expect the acquisition to increase of 4%. The US Dollar/euro average exchange rate of complete in mid-2015. 1.3290 (2013: 1.3281) was relatively unchanged from prior year. Overall sales of €18.9 billion were achieved, an increase The acquisition involves a portfolio of quality assets with of 5%. EBITDA for the year was €1.641 billion, up 11%. broad geographical and product spread. The businesses
4 CRH represented by these assets have market leading positions and cover a range of segments in the building materials Sales sector in both developed and emerging markets. On completion, the acquisition will strengthen our presence in €18.9 billion important markets across North America, Western, Central and Eastern Europe in addition to providing new platforms for growth in the Philippines and Brazil. EBITDA Acquiring these businesses represents a compelling €1.641 billion opportunity for the Group to employ our proven strategy in a transformative way. Our approach to value creation is straightforward – we deploy capital efficiently, to support Operating Profit vertically integrated businesses, which we then improve with our unrelenting commitment to operational excellence. €917 million Through this systematic process, we create significant and sustainable shareholder value. We have followed this model successfully for decades and, we believe that this acquisition Profit before Tax will deliver enhanced opportunities to roll out our vertical integration and bolt-on acquisition models. €761 million Throughout the period of recession and downturn in construction activity that followed the global financial Earnings per share crisis, the Group maintained strict financial discipline. This discipline has served us well and has positioned us strongly 78.9 cent to avail of the opportunity to acquire these businesses at an attractive valuation and at the right point of the business cycle. Upon completion, CRH will become the third largest Dividend per share building materials company in the world. 62.5 cent Outlook for 2015 In the United States, the pace of GDP growth is expected to pick up in 2015 and we believe that the fundamentals are in place for continued positive momentum in the economy. UK Shawfield Dalmarnock Smartbridge, Glasgow, Demand in the residential construction market continues to expand, albeit at a more moderate rate, while recovery in the non-residential market is starting to gather pace. While the infrastructure market remains broadly stable, there is upside potential due to the growing economy and increased state spending. In Europe, the general market environment continues to normalise across our main markets. The outlook for 2015 is somewhat mixed, particularly in the first half for which the 2014 comparatives reflect the benefit of very benign weather conditions. In our generally stable markets in Western Europe we expect to see some improvement in overall demand in 2015, particularly in residential activity. While the outlook in Ukraine remains very uncertain, we anticipate that demand will increase in Eastern Europe, driven primarily by an expected pick up in the roads programme in Poland towards the second half of the year. With the improvements expected in market conditions across our main geographies, together with easing commodity prices, the benefits of cost efficiencies and a favourable foreign exchange translation effect, we expect 2015 to be a further year of progress.
Albert Manifold, Chief Executive February 2015
CRH 5 Through 2012-2014, due to its expertise in concrete mixing and pouring technology, Bosta Beton was selected to supply circa 34,000 m3 of readymixed concrete, of which 14,000 m3 was in the form of architectural concrete products, to the Bialystock City Stadium in Poland.
6 CRH CRH Strategic Report
What We Do
CRH is a global leader in the manufacture and supply of a diverse range of superior building materials and products for the modern built environment. Our impact is far-reaching. Each day, millions of people around the world come into contact with our materials and products. From the roads we drive on, to the pavements we walk down, the buildings we work in, the schools our children attend, the restaurants and theatres we are entertained in, and to fitting out the homes we live in, CRH supplies the materials and products that build our world. Our route to global leadership has seen us expand our presence across the three major segments of the construction industry; residential, non-residential and infrastructure – and in ever widening geographies. Today, we operate in 34 countries. We are the largest building materials company in North America, a regional leader in Europe, and we have a number of strategic footholds in Asia.
Strategic Goals
CRH’s strategy is to deploy our proven value creation business model, which enables us to expand our balanced portfolio of diversified products and geographies, for the building industry in a sustainable way. The Group’s strategic goals are to achieve our vision to become the global leader in the industry, to conduct our business in a responsible manner, and to maximise returns for shareholders over the long term. To achieve these outcomes, we utilise a strong balance sheet, and cash generation capability to build leadership positions in regional markets, leveraging the scale of the Group to fund expansion by acquisition, and allocating resources appropriately to deliver growth. At the same time, we maintain financial discipline and a focus on returns, as we work to make all our businesses better through operational, commercial and financial performance. A guiding philosophy of CRH is to pursue these objectives as one company. For 45 years, we have grown in scale through the accumulation of hundreds of businesses. We integrate these businesses into the wider Group and through this process we deliver enhanced returns. With a presence across a broad range of construction products and materials, we provide a national service with the personal touch of a local supplier. CRH 7 CRH Footprint
The Group has good balance across its operations in North in acquisitions which meet our criteria of achieving vertical America and Western Europe. Our heavyside building integration, and which add to reserves and expand our materials operations give us exposure to new-build and regional and product positions. also to infrastructure repair, maintenance and improvement Elsewhere, in developing regions, such as Asia, our (RMI) construction. Elsewhere, our lightside and distribution entry platforms tend to be in cement. Industrialisation, businesses are mainly exposed to residential and non- urbanisation and population growth are key drivers in these residential markets, where we also have positions of scale, markets and CRH targets businesses that have the potential global brands and potential for growth. to develop further downstream into integrated building Our strategic priority in these mature markets is to develop materials businesses as construction markets become more our businesses further through a dynamic allocation and sophisticated. reallocation of capital, investment in greenfield projects and
8 CRH Portfolio Review In 2014, in light of a vastly changed environment following CRH’s vision is the global financial crisis and recession of the previous seven years, CRH undertook a comprehensive review of its entire to be the leading portfolio of businesses to determine which of those businesses offered the most attractive returns and potential for growth in building materials the emerging new cycle. Following this review, a multi-year business in the divestment programme has been initiated for up to €1.5 billion - €2 billion of assets. Portfolio Management world is now an intrinsic part of the Group’s strategy and value creation model, which is outlined in the next section.
Struyk Verwo Infra (SVI) contributed to the iconic Rotterdam Central Station and municipal area in the Netherlands by providing the polished paving flower bed blocks that surround the station and guide traffic. SVI was contracted to provide 1,050 m2 of product covering a green area of approximately 3,000 m2.
CRH 9 The CRH Business Model At the core of the CRH’s business model has played an instrumental role in the consistent delivery by the Group of industry leading return on CRH mission is a invested capital through the cycle. In the period 1970 – 2014, CRH has, in euro terms, delivered a formidable compound commitment to create annual Total Shareholder Return (TSR) of 15.7%. value and deliver At the heart of this enduring performance is our long standing and relentless commitment to our value creation model, which best-in-class returns is delivered by an international team of dedicated people. for all stakeholders, The five elements of the model are:
consistently and • A Balanced Portfolio sustainably • A Unique Acquisition Model • A Focus on Building Better Businesses • Dynamic Portfolio Management • Financial Strength
10 CRH Balanced Portfolio Acquisition Model
Building a balanced portfolio is a core constituent of our Each year, the Group’s balanced portfolio grows, primarily philosophy and a key determinant of value creation for CRH. by way of acquisition. For over four decades, CRH has The Group is a broad-based building materials business that successfully employed its unique acquisition model with is diversified with many products, geographies and sector a focus on adding small to mid-sized companies that end-uses. We are a multi-product company and the breadth complement and add value to our existing portfolio. On and depth of our product range differentiates our positioning occasion, larger and/or step-change acquisitions are made relative to peers in the industry. when the value proposition and strategic rationale are compelling. Maintaining a balanced portfolio enables the Group to take advantage of differing demand cycles across our Many of our core end markets in mature economies remain businesses. Diversification also opens up a greater number fragmented or relatively unconsolidated and will continue to of opportunities for acquisitions, while having vertically offer growth opportunities via our proven acquisition model integrated businesses creates potential for synergies and in the decades ahead. operational leverage. Our acquisition model for creating new value and growth platforms also offers considerable long-term potential in developing economies, in particular those in Asia, where the Group is currently building select leading regional positions.
Royal Roofing Materials BV renovated 7,000 2m of roofing at the monumental industrial building named Innovation Dock in Rotterdam, the Netherlands. The hall is situated on the terrain of a former shipyard which was recently rebuilt into a campus for education and innovation.
CRH 11 Building Better Businesses
Building Better Businesses is a core CRH competency. With financial strength, we can deliver greater value from these over 3,300 operating locations in 34 countries worldwide, the businesses. potential for value creation is significant. CRH’s operations benefit from an active philosophy of Through the extraction of inherent value in newly acquired continuous improvement. The Group provides guidance, businesses, and a focus on delivering organic performance support, functional expertise and control in the areas improvement in existing businesses, our commitment to of performance measurement, financial reporting, cash Building Better Businesses is a key component of the CRH management, strategic planning, business development, talent value creation model. management, governance and compliance, risk management, sustainability, health & safety and environment. Every day we strive to make improvements. Attention to detail by our 76,000 strong team, together with the multiplier effect of businesses involving millions of tonnes of aggregates, Portfolio Management asphalt and cement, and millions of units of construction Through the past number of very difficult years for the global accessories and distribution stock keeping units, has a construction industry, CRH has worked hard to position material and cumulative impact over time. itself to maximise the opportunities presented by the coming By leveraging the scale of the Group, benefits accrue in the growth cycle. areas of procurement, merchandising, selling prices, category An objective of the ongoing Portfolio Management process is management, distribution and IT. Through the sharing of to create a narrower and deeper suite of businesses that are knowledge, ongoing people development, optimisation of our positioned either by virtue of size, product mix, location or networks, operational leverage and utilisation of the Group’s
12 CRH operational expertise to benefit most from improvements in The combination of two key financial measures – robust cash demand activity and pricing in their respective markets. generation and solid interest cover – support the ratings CRH enjoys from the rating agencies S&P (BBB+) and Moody’s The impact of Portfolio Management on value creation is (Baa2). These strong investment grade ratings enable the twofold: capital will be continuously released from low Group to gain access to multiple sources of funding. growth areas and reallocated to core businesses for growth, while balance sheet capacity will be enhanced to boost In recent times, our financial discipline has enabled the Group acquisition capabilities. to secure lower and more diversified long-term interest rates on our debt, which will reduce the Group’s average interest Financial Strength rate from above 5% in 2012 to circa 3% from 2018 onwards. Financial strength is a fundamental tenet of the business Maintaining a position of financial strength is a cornerstone and has given CRH the capacity to increase or maintain the of the CRH business model and the Group adopts a rigorous dividend payment to shareholders in each of the last 31 years. commitment to financial discipline, strong cash generation and retaining balance sheet capacity. Financial strength enables the Group to create value in two The Shelly Company’s Smith Concrete supplied and delivered key ways: to provide the resources to fund value enhancing 14,715 m3 of concrete and over 45,000 tonnes of aggregates to the investments and long-term growth; and to reduce the cost of Zanesville, Ohio, Genesis Healthcare 2014 expansion project. Smith capital which ultimately translates into higher margins and Concrete’s 4-H-themed readymix truck promotes the largest youth profitability. development organisation in the United States.
CRH 13 Measuring Performance CRH believes that measurement fosters positive behaviour and performance. In keeping with our focus on Building Better Businesses, we continue to refine and develop appropriate financial and non-financial measures to communicate leading practice benchmarks across our organisation.
Financial KPIs Why Important 2014 Performance
Total Shareholder Return TSR is a full measure of monetary value created Total Shareholder Return (%) and delivered to owners. A measure of shareholder returns 2014 delivery through the cycle 2013 2012
0% 10% 20% 30%
Return on Net Assets (RONA) RONA is a key internal pre-tax measure of Return on Net Assets (%) operating performance. A measure of returns through excellence 2014 in operational performance 2013 2012
3% 5% 7% 9%
Operating Cash Flow (OCF) OCF is the primary funding source for dividend Operating Cash Flow (€ Bn) payments and investment spend. A measure of cash flows generated to fund 2014 organic and acquisitive growth 2013 2012
0.4 0.6 0.8 1.0
EBITDA Interest Cover EBITDA interest cover is evidence of ability to EBITDA Interest Cover (x) service interest payments and debt maturities. A measure of financial liquidity and 2014 It underpins the investment grade credit ratings capital resources and the Group’s ability to access finance. 2013 2012
4.0 5.0 6.0 7.0
Non-financial KPIs Why Important 2014 Performance
% Zero-Accident Locations Safety is a priority for CRH and we constantly % Zero-Accident Locations strive to improve our performance. A strong A measure of safety in the workplace 2014 safety culture is a key element of our business 2013 strategy. 2012
80% 85% 90% 95%
Greenhouse Gas Emissions Energy efficiency and carbon reduction are CO2 Emissions (kg/€ Revenue) twin imperatives of CRH’s environmental A measure of addressing the challenges 2014 management strategy. of climate change 2013 2012
0.4 0.5 0.6 0.7
Gender Diversity Recruitment, selection and promotion decisions Diversity (%Female) are merit-based and in line with the principles of 2014 A measure of an inclusive workplace equal opportunity and non-discrimination. 2013 2012
5 10 15 20
14 CRH Key Performance Indicators (KPIs) are used to measure the Group’s performance against its strategy. These are quantifiable measurements, which the Group has worked to for many years and which demonstrate how CRH strategy is being successfully implemented.
2015 Focus Links to other disclosures
CRH delivered TSR of 12.3% in 2014 Delivering superior return on invested capital Directors’ Remuneration Report and in euro terms has delivered a and maintaining strong cash flows to support pages 72 to 95 compound annual TSR of 15.7% since the continued development of the Group and the formation of the Group in 1970. dividend payment.
RONA improvement to 7.4% in 2014 Improved RONA through effective margin Business Performance Review is a reflection of improved profit management, continued enhancement of pages 22 to 49 margins in all six business Divisions. operating efficiencies and tight working capital Directors’ Remuneration Report management. pages 72 to 95
Prudent working capital and tight To continue to generate strong operating cash Summarised cash flow capital expenditure increased OCF flows in 2015. page 24 to over €902 million in 2014.
Cover at 6.7x was higher in 2014 due Maintain financial discipline to ensure that Finance Director’s Introduction to strong organic EBITDA delivery. EBITDA cover remains strong and should pages 22 to 24 usually be no lower than 6x. Note 23 Interest-bearing Loans and Borrowings CRH’s credit ratings: BBB+/Baa2 from page 138 S&P/Moody’s rating agencies.
2015 Focus Links to other disclosures
Encouragingly we achieved 93% Further enhancement of a strong safety culture CRH Sustainability Report zero-accident locations in 2014 with the ultimate aim of achieving zero-accident published mid-year 2015 (2013: 92%). status at every location.
While absolute CO2 emissions Ongoing programmes focus on reducing CO2 CRH Sustainability Report increased with increased activity, our emissions. Working towards 25% net reduction published mid-year 2015 cement plant measure remained stable in specific net CO2 cement plant emissions by Note1: CO2 emissions subject to final verification at 0.62 tonne net CO per tonne of 2020. 2 under the EU Emissions Trading Scheme (EU cementitious product. ETS). Lower carbon products and Group-wide energy CO2 Emissions (million tonnes) and resource efficiency programmes. Note 2: Group CO2 emissions data includes both Scope 1 Scope 2 Scope 1 and Scope 2 emissions, as defined by 2014 10.3 1.4 the WRI Greenhouse Gas Protocol. 2013 9.8 1.3
In 2014, 18% of all employees were The building materials industry traditionally Corporate Governance Report pages 54 to 71 female. Within that 11% of operational attracts a higher than average proportion of Senior Management Listing staff and 41% of clerical and male employees. pages 160 and 161 administrative staff were female. At Board level, 17% of our Directors Continue to encourage all CRH employees to CRH Sustainability Report were female and 5% of our senior develop their careers. published mid-year 2015 managers were female.
CRH 15 16 CRH Sustainability and Governance
CRH’s strategy and business model is built around the principles of sustainable, responsible and ethical performance. The Group’s organisational culture is rooted in a daily commitment to core values of honesty, integrity and respect in all business dealings. CRH believes that combining these principles and values with best international practice, promotes good governance and provides a platform for the business to deliver superior returns over a sustained period of time, while also being sensitive and responsive to stakeholders and the environment in which the Group operates. CRH has therefore placed sustainability and corporate social responsibility at the heart of its business model, strategy and activities worldwide.
Health & Safety
CRH employs approximately 76,000 people globally and keeping people safe is a strategic priority at all levels of the organisation. Throughout the organisation, from senior executives to operational management and all employees, safety in the workplace remains a primary focus. The Group’s network of safety officers oversee the implementation of safety policy and best practices across all operations. Over the last five years, CRH has invested €135 million in a range of initiatives worldwide targeted at promoting and maintaining a strong culture of safety. The effectiveness of these efforts is demonstrated by the continued reduction in accidents. A significant 93% of active locations were accident free in 2014, which is an improvement on the prior year, and the accident frequency rate has reduced by an average of 15% per annum over the last decade. However, despite the continued focus on safety, CRH deeply regrets the loss of two contractors’ lives at Group operations during 2014. CRH continues to implement its Group-wide Fatality Elimination Plan and the elimination of fatalities is a fundamental objective of the Group.
The Gliniany Quarry, owned by Grupa Ožarów SA in Poland, excavated its 100 millionth tonne of limestone for clinker production in December 2014. This photo, taken after severe rain in the area, displays the coexistence of the operating quarry and the surrounding nature.
CRH 17 Environment & Climate Change
With a global base, CRH recognises the part it can play in Further progress was made in 2014. CRH continued to improving the sustainability of the built environment. CRH increase sales of lower carbon products such as warm-mix is committed to the highest standards of environmental asphalt, which now accounts for approximately 40% of CRH’s management and to addressing proactively the challenges and US asphalt sales. In Europe CRH provides low carbon cement opportunities of climate change. for sustainable construction and approximately one third of CRH’s cement plant fuel requirements are met by alternative The Group implements programmes across its worldwide fuels, generating cost benefits in addition to carbon savings. operations to promote energy and resource efficiency, achieve targeted air emission reductions, enhance biodiversity, restore As well as being recyclable themselves, many CRH products worked-out quarries and, in addition, realise environmentally incorporate significant quantities of recycled and other driven product and process innovation and new business alternative materials. In 2014, the Group used 19 million opportunities. tonnes of externally sourced alternative materials to replace raw materials, including recycled asphalt pavement and In 2012, three years ahead of the target date, CRH achieved shingles which together provide a fifth of asphalt requirements its commitment to reduce specific net carbon dioxide (CO ) 2 in US operations. emissions from cement plants by 15% on 1990 levels. CRH is now on track to achieving its 2020 commitment to a 25% reduction in specific net CO2 cement plant emissions on 1990 levels.
18 CRH People & Community
CRH believes that continued sustainable business success The building materials industry traditionally attracts is built on maintaining excellent relationships with all more male than female employees. In 2014, 18% of CRH’s stakeholders. employees were female. At Board level, CRH has two female directors including the Finance Director, increasing to three The Group is committed to fostering respect in the workplace from 1 March 2015. Following the Annual General Meeting and to developing an inclusive workforce based on merit 25% of the CRH Board will be female. and ability. Good people are at the heart of all successful organisations. It is a guiding Group philosophy to develop and CRH also recognises a wider responsibility beyond core nurture all employees, to provide training and skills learning, business activities in the communities in which Group offering strong career paths and upskilling opportunities. companies operate. It is Group policy to actively support and engage with our neighbours. In 2014, Group companies hosted The Group endorses human and labour rights and supports over 600 stakeholder engagement events. the principles set out in the articles of the United Nations’ Universal Declaration of Human Rights and the International CRH assists local neighbourhood and community initiatives, Labour Organisation’s Core Labour Principles. CRH operates in addition to supporting programmes in education, a comprehensive Code of Business Conduct and has environmental protection and job creation. For example, additionally implemented an Ethical Procurement Code and during 2014, CRH’s US subsidiary, Oldcastle, continued in Supplier Code of Conduct. its national partnership with Habitat for Humanity and also continues to support the Wildlife Habitat Council.
Oldcastle hosted its first Earth Day event on the Oldcastle Nature Trail at the Marcus Autism Center, in Atlanta, Georgia. Oldcastle employees participated in creating a butterfly garden, removing invasive plants, and planting native trees and bushes to enhance the trail.
CRH 19 Delivering Best-in-Class Governance
CRH is committed to adopting and maintaining best-in-class success. The Code of Business Conduct sets out policies and governance, which is a hallmark of successful organisations guidelines, training, and monitoring and review mechanisms. and businesses. At CRH, our values based approach to In the current training cycle a further 32,000 employees building and running a global business places an emphasis participated in Code of Business Conduct training. A further on respect for the law and an unrelenting commitment to 11,000 also undertook advanced instruction on changing compliance with the highest standards of business ethics. regulatory environments, anti-bribery rules, competition law CRH adopts an open and transparent environment in the and other relevant areas such as corruption and fraud. workplace and we have developed an internal principle of Further information is provided in the Corporate Governance conduct for all employees that there is ‘never a good reason to section of this report on pages 54 to 71. do the wrong thing’. Within this environment, we also foster a ‘speak up’ culture to empower and encourage participation among employees. CRH’s Compliance & Ethics teams implement a Code of Business Conduct programme and work to ensure its
20 CRH Managing Risk Performance Reporting
Managing risk is an area of vital importance to CRH and the CRH has formal structures in place to identify, evaluate and Group has adopted a formal Enterprise Risk Management manage potential risks and opportunities in sustainability (ERM) framework as a basis for assessing and mitigating areas. Group performance in this regard, together with the risks associated with our range of businesses and corporate effectiveness of actions, is reviewed regularly by the Board decisions. of Directors. CRH is committed to reporting on the breadth of its sustainability performance in a comprehensive and The Group adopts the best international practice of transparent manner and to publishing performance indicators incorporating the ‘three lines of defence’ structure into and ambitions in key identified sustainability areas. The our corporate risk management: (i) local management, Group’s annual Sustainability Report is published mid-year (ii) divisional and corporate oversight, and (iii) the internal following external independent verification and is available audit function. at www.crh.com. The principal risks and uncertainties faced by the Group are outlined on pages 96 to 98 of the Directors’ Report and are ® reported to the Audit Committee on a bi-annual basis. Oldcastle Precast provided Storm Capture as a solution for the underground stormwater detention system at the new administration building site at Quantico National Cemetery, in Virginia – a military cemetery for veterans of the United States Armed Forces.
CRH 21 EBITDA Business Performance Review €1,641 million Capital Expenditure €435 million Operating Cash Flow €902 million Net Debt Finance Director’s Introduction
2014 was a year of growth for CRH, with improved €2.5 billion performance in the first half driven by favourable weather in Europe, and the second half benefiting from improved Net Debt/EBITDA momentum in the United States. The Group continued to focus on cash generation finishing the year in a strong and 1.5 times flexible financial position. Net debt at year-end 2014 reduced by €0.5 billion compared to 2013. This was achieved with strong cash inflows from operations, and proceeds of €0.35 EBITDA/Net Interest billion from disposals, partly offset by spend of €0.62 billion on acquisitions, investments and capital expenditure, and 6.7 times dividend payments of €0.46 billion. Key Components of 2014 Performance Overall sales for 2014 were 5% ahead of 2013, while organic sales from underlying operations were up 4%, reflecting strong favourable weather-impacted demand in Europe in the first half and increasing activity in the United States. Jura Cement Plant, Wildegg, Switzerland In Europe, after the encouraging start to the year which saw like-for-like sales increase by 6% helped by favourable early- season weather, trading in the second half was impacted by moderating trends across all three segments. Overall like- for-like sales for the year increased by 2%. EBITDA margin increased due to increased capacity utilisation, efficiency measures and cost saving actions.
Against an improving market backdrop as the year progressed, like-for-like sales in the Americas were up 8% in the second half, compared with a first-half increase of 4%. In our Materials business, like-for-like sales improved throughout the year and finished 7% ahead. Our Products and Distribution businesses which were impacted by unfavourable weather patterns in the early part of the year, benefited from improving demand in the second half particularly from new residential construction, and like-for-like sales were 5% ahead of 2013. With higher sales and good cost control, EBITDA margins improved in all three Americas segments. During 2014, the US Dollar remained relatively stable at approximately 1.33 against the euro, however the weakening of currencies like the Ukrainian Hryvnia and Argentine Peso, partly offset by the strengthening of Sterling, were the principal factors behind the exchange effects shown in the
22 CRH table below. The average and year-end 2014 exchange rates of on property, plant and equipment resulted in lower cash the major currencies impacting on the Group are set out on outflows of €435 million (2013: €497 million), with spend page 114. in 2014 representing 69% of depreciation (2013: 74%). As a result, operating cash flow increased to €902 million We continued to advance the significant cost-reduction (2013: €736 million). initiatives which have been progressively implemented since 2007 and which by year-end had generated cumulative Other major movements in net debt during the year comprised annualised savings of over €2.5 billion. Total restructuring acquisition spend of €188 million on 21 transactions which costs associated with these initiatives (which generated was more than offset by divestment and disposal proceeds of savings of €118 million in 2014) amounted to €51 million €345 million. in 2014 (2013: €71 million) and were once again heavily Dividend payments of €460 million (before scrip) and proceeds focussed on our European Divisions. of €129 million from share issues (including scrip and net of Cash Management and Financial Performance own shares purchased) were very similar to last year. Throughout 2014 the Group continued to keep a focus on At year-end the stronger US Dollar (1.2141 versus the euro cash management, targeting in particular working capital and compared with 1.3791 at year-end 2013) was the main factor capital expenditure. Year-end working capital of €2 billion in the negative translation and mark-to-market impact of represented just 10.6% of sales, an improvement compared €181 million on net debt. Net debt of €2.5 billion at with year-end 2013 (11.2%). This performance delivered net 31 December 2014 was €481 million lower than year-end 2013. inflows for the year of €69 million (2013: €118 million). CRH The Group is in a strong financial position. It is well believes that its current working capital is sufficient for the funded and interest cover (EBITDA/net interest) of 6.7x is Group’s present requirements. Strong control of spending
Key Components of 2014 Performance
Equity Operating Profit on Finance accounted Pre-tax € million Revenue EBITDA profit disposal costs (net) investments* profit/(loss)
2013 18,031 1,475 100 26 (297) (44) (215) Exchange effects (62) (11) (4) - (1) 5 - 2013 at 2014 exchange rates 17,969 1,464 96 26 (298) (39) (215) Incremental impact in 2014 of: - 2014 and 2013 acquisitions 237 16 4 - - (2) 2 - 2014 and 2013 divestments (25) - 1 43 - (1) 43 - Restructuring costs - 20 20 - - - 20
- Pension/CO2 gains - (23) (23) - - - (23) - Impairment charges - - 601 - - 105 706 Ongoing operations 731 164 218 8 10 (8) 228 2014 18,912 1,641 917 77 (288) 55 761
* CRH’s share of after-tax profits of joint ventures and associated undertakings
CRH 23 Finance Director’s Introduction | continued
significantly higher than the minimum requirements in the Business Performance Reviews Group covenant agreements – further details are set out in The section that follows outlines the scale of CRH’s business note 23 to the financial statements. in 2014, and provides a more detailed review of performance We successfully completed two bond issues during 2014: in July in each of CRH’s six reporting segments. €600 million of 7-year euro bonds were issued with a coupon of 1.75% and in September we completed our first Swiss Franc issuance for a further CHF330 million of 8-year bonds with a Summarised Cash Flow coupon of 1.375%. These were the lowest ever coupons obtained by the Group and reflect CRH’s commitment to managing debt 2014 2013 Inflows €m €m and maintaining an investment grade credit rating. Profit/(loss) before tax 761 (215) The Group remains in a very strong financial position with total liquidity at end 2014 of €5.9 billion comprising Depreciation, amortisation and impairment 724 1,375 €3.3 billion of cash and cash equivalents on hand and Working capital inflow (i) 69 118 €2.6 billion of committed undrawn facilities which do not 1,554 1,278 mature until 2019. These cash balances were enough to meet Outflows all maturing debt obligations for the next five years and the Tax payments (127) (110) weighted average maturity of the remaining term debt was Capital expenditure (435) (497) eight years. Other (ii) (90) 65 CRH’s euro share price increased by 9% in 2014 to €19.90 at (652) (542) year-end; combined with the maintained dividend of 62.5c, Operating cash flow 902 736 shareholder euro returns were 12% in 2014 and contributed Pension payments (66) (96) towards net debt as a percentage of market capitalisation Acquisitions and investments (iii) (188) (720) decreasing to 17% (2013: 22%). Proceeds from disposals (iv) 345 283 Post Balance Sheet Events Share issues (v) 129 101 Dividends (before scrip dividends) (460) (455) On 1 February 2015, CRH announced that it had made a Translation and mark-to-market adjustment (181) 87 binding commitment to acquire certain businesses and assets of Lafarge S.A. (“Lafarge”) and Holcim Limited (“Holcim”) Decrease/(increase) in net debt 481 (64) for a total enterprise value of €6.5 billion. The proposed (i) Working capital inflow includes the difference between net finance acquisition is subject to: (i) CRH shareholder approval at costs (included in profit before tax) and interest paid and received. an Extraordinary General Meeting to be held on 19 March (ii) Other outflows comprise, primarily non-cash items included in profit 2015; (ii) the successful completion of the proposed merger before tax, comprising primarily profits on disposals/divestments of of Lafarge and Holcim and (iii) the completion of certain €77 million (2013: €26 million), share-based payments expense of €16 million (2013: €15 million) and share of profit of equity accounted local reorganisations by Lafarge and Holcim in advance of investments of €55 million (2013: €44 million loss), together with the acquisition. The Board believes that this acquisition, dividends received from equity accounted investments of €30 million which arises from the decision by Lafarge and Holcim to (2013: €33 million). divest certain of their businesses and assets in order to obtain (iii) Acquisitions and investments spend comprises consideration for acquisition of subsidiaries (including debt acquired and asset regulatory clearances necessary to complete their merger, exchanges), deferred and contingent consideration paid, other represents a compelling strategic opportunity for CRH. The investments, advances and acquisition of non-controlling interests. acquisition will be funded through a combination of €2 billion (iv) Proceeds from disposals includes asset exchanges (see note 4 to from existing cash resources, the proceeds of €1.6 billion Financial Statements). from the placing, which completed on 5 February 2015, of (v) Proceeds from share issues include scrip dividends of €107 million (2013: €88 million) and in 2013 were net of own shares purchased of 74,039,915 ordinary shares in CRH plc (which rank pari passu €6 million. in all respects with the existing ordinary shares including the right to receive all future dividends declared or paid after the date of the placing) and by new debt facilities in the amount of €2.9 billion. See note 33 on page 153 for further details.
24 CRH The museum and cultural centre La Fondation Louis Vuitton, designed by architect Frank Gehry, opened in Paris in October 2014. Zoontjens produced 1,530 m2 of unique, natural stone rooftop terrace tiles designed to ensure they could withstand substantial weights of 20 kN per slab.
CRH 25 Operational Snapshot (sector exposure and end-use based on 2014 EBITDA)
Europe Heavyside Europe Lightside Europe Distribution
€ million % of Group € million % of Group € million % of Group
Sales 3,929 21% Sales 913 5% Sales 3,999 21% EBITDA 380 23% EBITDA 94 6% EBITDA 190 12% Net Assets* 2,396 20% Net Assets* 546 4% Net Assets* 1,577 13%
Geography Products Activities
Fencing & Cubis SHAP Construction 25% East 20% Accessories Builders Merchants West 45% 55% 45% 55% Shutters & Awnings DIY 25% 30%
Sector Exposure Sector Exposure Sector Exposure
Residential 40% Residential 35% Residential 80% Non-residential 35% Non-residential 50% Non-residential 20%
Infrastructure 25% Infrastructure 15% Infrastructure 0%
End-use End-use End-use
New 75% New 70% New 35% RMI 25% RMI 30% RMI 65%
Annualised Production Volumes Annualised Production Volumes Outlets Cement – 10.3m tonnes (19.8m tonnes**) Fencing & Security – 3.5 lineal metres Builders Merchants – 343 (517**) Aggregates – 41.9m tonnes (42.5m tonnes**) DIY – 184 (228**) Asphalt – 2.1m tonnes SHAP – 132 Readymixed Concrete – 7.1m m3 (7.5m m3**) Lime – 1.1m tonnes Concrete Products – 6.5m tonnes Architectural Concrete – 7.4m tonnes Clay – 2.0m tonnes
* Net assets at 31 December 2014 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements. ** Including equity accounted investments.
26 CRH Americas Materials Americas Products Americas Distribution
€ million % of Group € million % of Group € million % of Group
Sales 5,070 27% Sales 3,225 17% Sales 1,776 9% EBITDA 609 37% EBITDA 263 16% EBITDA 105 6% Net Assets* 5,276 43% Net Assets* 1,863 15% Net Assets* 668 5%
Geography Products Activities
West Precast 35% 20% Interior East APG 40% Exterior 65% 55% 60% Building Envelope® 20%
South America 5%
Sector Exposure Sector Exposure Sector Exposure
Residential 15% Residential 45% Residential 50% Non-residential 25% Non-residential 45% Non-residential 50%
Infrastructure 60% Infrastructure 10% Infrastructure 0%
End-use End-use End-use
New 35% New 70% New 45% RMI 65% RMI 30% RMI 55%
Annualised Production Volumes Annualised Production Volumes Outlets Aggregates – 135.8m tonnes (137.3m tonnes**) Concrete masonry, patio products and Exterior products – 146 Asphalt – 39.4m tonnes (40.5m tonnes**) pavers – 9.9m tonnes Interior products – 52 Readymixed Concrete – 6.2m m3 (6.3m m3**) Pre-packaged concrete mixes – 2.8m tonnes Clay bricks, pavers and tiles – 0.9m tonnes Pre-packaged lawn & garden products – 4.3m tonnes Precast concrete products – 1.2m tonnes Pipe and pre-stressed concrete – 0.4m tonnes Building envelope products – 9.4m square metres Fencing products – 12.1m lineal metres
CRH 27 CRH in Europe
Finland
Norway
Sweden Estonia St. Petersburg Region Latvia of Russia
Denmark
Ireland Netherlands Britain Poland Belgium Germany Ukraine Czech Republic Slovakia
Austria France Switz. Hungary Romania
Italy
Portugal Spain
Israel
28 CRH CRH is a regional leader in the manufacture and supply of building materials to construction markets in Europe and strives to maintain No 1 and No 2 market positions in different product segments across a range of European countries. The European operations are comprised of three divisions: Heavyside, Lightside and Distribution. The Heavyside operations produce cement, asphalt, aggregates, readymixed concrete, precast concrete and concrete landscaping. Our Lightside operations manufacture construction accessories, shutters & awnings, fencing and composite access chambers. In Distribution we are a leading player in builders merchanting, DIY and sanitary, heating and plumbing. Operating across Western and Eastern St. Petersburg Europe, close to 36,000 people are Region employed at over 1,500 locations. of Russia
Top: CRH operates six cement distribution terminals across the UK. Pictured here, a bulk tanker loaded with cement from CRH in Ireland leaves the Premier Cement Ukraine Terminal at Liverpool, England for delivery to customers.
Centre: Heras, a Europe Lightside fencing business, recently developed the innovative iGate range. This is a lightweight and environmentally friendly aluminium gate design, with a large choice of colours and frame fillings for the architect including LED illumination. Pictured is a Heras iGate at a hotel in Dordrecht, the Netherlands.
Right: Regusci Reco is located in the Italian speaking part of Switzerland, a major tourist area. Their distribution product range comprises all the materials needed to build tourist accommodation including building materials, bathrooms, kitchens, tools and doors.
CRH 29 Europe Heavyside
Business Description
In 2014, the Group reorganised its focus on achieving greater production European business by integrating its efficiencies and realising operational, Market leadership positions former Materials Division with the logistical and procurement synergies concrete and clay businesses of the across our network. A commitment to a Cement former Products Division into one sustainable future results in greater use Heavyside organisation. The purpose of alternative fuels and the manufacture Top 10 Europe of this reorganisation is to enable CRH of low carbon cements. No.1 Finland, Ireland, Ukraine, to maximise the benefits and synergies Basque Region Spain Our development focus is centred of our operating plant network in both No.2 Switzerland on bolt-on acquisitions for synergies, Western and Eastern European markets. No.3 Poland reserves and further vertical integration, Europe Heavyside’s strategy is to build in addition to opportunities in Aggregates leading regional positions in businesses contiguous regions to extend and that are vertically integrated and which strengthen regional positions; this No.1 Finland, Ireland have the potential to grow further in the includes developing markets in Eastern large European construction markets. Europe that offer long-term growth Readymixed concrete We deliver our strategy through a focus potential, with entry via cement and on a balanced exposure to demand, aggregates assets and the potential No.1 Finland, Ireland product penetration and on maximising to roll out operational excellence No.2 Switzerland the benefits of scale and best practice. programmes and a vertical integration No.2 Poland Our business is differentiated and approach over time. In the context of achieves competitive advantage through the detailed review of the portfolio Agricultural & chemical lime a commitment to constant product, undertaken by the Group during 2014, process and end-use improvement. CRH announced in December 2014 that No.1 Ireland it had reached agreement to dispose of Europe Heavyside is organised into No.2 Poland its clay and concrete businesses in the two regional divisions: Western UK. The transaction is expected to close Europe, which comprises our cement, Concrete products in the first quarter of 2015. aggregates, asphalt, concrete and clay operations primarily in Switzerland, Europe Heavyside employs No.1 Structural concrete & Germany, UK, Benelux, France, approximately 19,100 people at close to flooring: Benelux Denmark, Ireland and Spain, and 800 locations in 21 countries. No.1 Structural concrete: Denmark Eastern Europe which includes our No.2 Utility precast: France cement, aggregates, asphalt and No.1 Precast structural elements: concrete businesses in Poland, Ukraine Hungary, Switzerland and Finland. The business model No.1 Concrete fencing and of vertical integration is founded in lintels: UK resource-backed cement and aggregates assets, which support the manufacture Architectural concrete and supply of cement, aggregates, readymixed and precast concrete, No.1 Blocks & rooftiles: Ireland concrete landscaping and asphalt No.1 Landscaping products: products. Consequently, a key focus for Finland, Poland, Benelux, the Heavyside Division is the ongoing France and Slovakia process of extending and adding to No.1 Paving/landscape walling: reserves. We operate a network of Germany well-invested facilities and place great No.1 Architectural masonry: UK emphasis on excellence initiatives No.2 Paving products: Denmark across the business. CRH’s approach to Building Better Businesses ensures a
30 CRH Operations Review
Results Analysis of change
% Total Restructuring/ Pension/
€ million Change 2014 2013 Change Organic Acquisitions Divestments Impairment CO2 gains Exchange
Sales revenue 4% 3,929 3,786 143 105 51 -4 - - -9
EBITDA* 17% 380 326 54 47 2 1 22 -11 -7
Operating profit* 138% 151 -395 546 73 -2 1 489 -11 -4
EBITDA/sales 9.7% 8.6%
Operating profit/sales 3.8% -10.4%
* EBITDA and operating profit exclude profit on disposals No pension restructuring gains were recorded (2013: €12 million) Restructuring costs amounted to €15 million (2013: €37 million)
Gains from CO2 trading amounted to €9 million (2013: €8 million) Impairment charges of €35 million were incurred (2013: €502 million)
The commentary below excludes the UK the residential market remained pricing remained difficult due to the the impact of impairment charges on very strong both for our clay and overcapacity in the market; operating operating profit. concrete businesses, and sales and profit increased. In Spain, the decline operating profit increased during the in national cement volumes moderated, Excellent weather conditions, especially year. There was a mixed outcome in while volumes for our cement business in the first quarter, provided a platform the Benelux. While overall demand in in the Basque region were slightly ahead for a like-for-like sales increase of the Netherlands was weak, resulting in of 2013; overall operating profit was 7% in the first six months. With sales lower volumes for readymixed concrete ahead of the 2013 outcome. marginally behind 2013 in the second and landscaping products, cement half, overall like-for-like sales for the volumes remained in line with the Eastern Europe (45% of EBITDA) year increased by 3%. The EBITDA prior year and in Belgium were better Our operations benefited from margin improved significantly due to than in 2013. Both markets experienced favourable weather at the start of the increased capacity utilisation, efficiency significant price pressure and operating year, with like-for-like sales up 9% measures, cost savings and relatively profit was lower than prior year. In in the first half. However, sales fell stable input costs. Ireland an increase in residential by 6% in the second half, resulting Western Europe (55% of EBITDA) activity in Dublin resulted in higher in a marginal increase in like-for-like volumes, however prices remained sales for the year overall. The slight Sales increased by 4% in 2014 with competitive due to overcapacity in the improvement was achieved against a double-digit growth in Ireland and market. Overall operating profit was in backdrop of political turmoil in Ukraine the UK partly offset by declines in the line with 2013. offset by improved demand in Poland. A Benelux and France. EBITDA increased relatively stable input cost environment, significantly, mainly driven by excellent Construction output in France together with ongoing efficiency results in the UK. continued to decline and precast measures, resulted in an overall stable concrete volumes fell sharply With the residential construction EBITDA margin. resulting in lower operating profit. market remaining strong in Switzerland, In Germany, volumes were higher Construction output in Poland increased our cement volumes were 8% ahead in our concrete landscaping activity by 5% in 2014, reflecting an early of 2013, although we continued to and prices remained under pressure; start to the season due to very mild experience price pressure. Prices underlying operating profit was in weather in the first quarter, stronger in the downstream businesses were line with 2013. Residential activity economic growth and a pick-up in the stable while volumes declined slightly. in Denmark improved, and although previously sluggish residential sector. Overall operating profit declined. In
CRH 31 Europe Heavyside | continued
National cement volumes for the year further especially in the infrastructure increased by 6%. Our readymixed sector. The outlook for Germany and concrete and landscaping volumes also Denmark is positive, but showing increased. While prices for many of only modest growth. Spain remains our products remained under pressure, challenging and we expect that 2014 operating profit in Poland increased was the bottom of the cycle, with due to strong volumes and the benefit moderate improvements anticipated of previously implemented cost- in 2015. reduction programmes. Despite the Eastern Europe: The growth in activity uncertain political backdrop in Ukraine in Poland during 2014 is expected and a 13% reduction in national to continue to be led by a pick-up in construction output, our like-for-like road programme activity in the second cement volumes were only down 1% half of 2015. The outlook for Ukraine on 2013 reflecting the concentration of is uncertain; we expect construction our plants in western Ukraine and the activity to decline, and the local ongoing commitment and dedication currency is expected to remain very of our Ukrainian-based team. Due weak. The outlook remains challenging to better pricing, continued focus for Finland, although with the benefits on cost efficiencies and the full-year of cost efficiencies we expect to improve benefit of the acquisition of Mykolaiv, margins. Further growth is expected in operating profit in local currency was Romania, Hungary and Slovakia. ahead of 2013. Construction output in Finland remained relatively weak in 2014 mainly as a result of a continuing Reserves decline in housing starts and a 2% drop in our cement volumes. Volumes Physical Proven & Period to and prices in readymixed concrete and location probable depletion aggregates were also under pressure and million tonnes years operating profit was below 2013. Sales and operating profit were ahead in 2014 Cement in our concrete products operations in Ireland 217 133 Romania, Hungary and Slovakia as a Poland 185 49 result of improved activity. Switzerland 26 17 Ukraine 164 62 Outlook Spain 86 602 Western Europe: In the Netherlands Aggregates we expect to see further improvements in the residential sector, which should Finland 190 15 have a positive impact in 2015, while Ireland 897 85 Poland 182 20 the non-residential and infrastructure Spain 98 43 sectors are expected to improve Alulux is part of the Other 173 22 marginally. In Switzerland construction Shutters & Awnings business in Europe activity is expected to decline slightly Lime but remain on a relatively high level Lightside. It is a leading Ireland/Poland 46 46 with some improvement from larger German producer of roller infrastructure (tunnel) projects, which shutters and external are expected to commence in 2015. venetian blinds, which are The outlook for construction output in used to improve energy Belgium is flat. Ireland should continue efficiency, comfort and to grow with overall construction security in residential activity mainly driven by the residential building construction and segment. France is expected to decline renovation.
32 CRH Europe Lightside
Business Description
Europe Lightside produces and supplies closely with them to develop design by economic development, changing high-value, award-winning products, solutions that are approved and certified demographics and sustainability. expert solutions and other technologies for individual target markets. Employees total approximately 5,000 for often challenging construction We draw upon an outstanding record people at circa 100 operating locations projects. The Division is organised of enabling mature and high-growth in 17 countries. into four business areas: Construction businesses alike to expand their Accessories, Shutters & Awnings, offerings, and develop their markets. Fencing and Cubis (composite access Lightside has achieved consistently chambers). We buy, build and grow attractive returns. The resilience of business units with market leading Market leadership positions these returns reflects active, balanced positions and strong growth prospects, management of our product range and selling through a range of flagship Construction Accessories our geographic and business cycle brands at a regional and European level. exposures. No.1 Europe The Lightside Division grows both Our development strategy is to deepen No.1 Malaysia organically and by acquisition to create our positions in existing markets and No.2 Singapore leading positions within our chosen technologies in developed European markets. We maximise synergies across markets, to broaden our product range Shutters & Awnings the business in the areas of performance in selected growth categories, and to improvement, procurement, talent No.1 Netherlands expand our presence in developing management and product development. No.3 Germany regions outside Europe as construction We have a relentless focus on markets in those areas become more innovation. Lightside customers sophisticated. Fencing are specialist end-users, including This strategy complements CRH’s aim to No.1 Europe architects and engineers. Using our pan- provide innovative solutions that meet European presence and scale, we work the longer-term opportunities presented
CRH 33 Europe Lightside | continued
Operations Review
Results Analysis of change
% Total Restructuring/ € million Change 2014 2013 Change Organic Acquisitions Impairment Pensions Exchange
Sales revenue 7% 913 856 57 53 - - - 4
EBITDA* 32% 94 71 23 22 - 1 -1 1
Operating profit* 154% 71 28 43 31 - 14 -1 -1
EBITDA/sales 10.3% 8.3%
Operating profit/sales 7.8% 3.3%
* EBITDA and operating profit exclude profit on disposals Restructuring costs amounted to €5 million (2013: €6 million) No pension restructuring gains were recorded (2013: €1 million) No impairment charges were recorded (2013: €13 million)
The commentary below excludes strong growth in operating profits, while sales and operating profits. Despite the impact of impairment charges on Switzerland also performed well. The challenging market conditions, results operating profit. more commodity-focussed Building for Mobile Fencing were only slightly Site Accessories businesses had a lower year-on-year, as a result of various 2014 saw good progress for Europe mixed year, with better performances operational excellence measures. Cubis, Lightside, with our portfolio of in the UK, Belgium and Spain offset by our composite access chamber business, businesses benefiting from mild weather rationalisation costs and more difficult had another good year in which sales early in the year. Like-for-like sales trading conditions in Germany and and operating profits increased due to were 6% ahead of 2013, helped by France. strong UK demand and the introduction good export levels to markets outside of a range of new products. of Europe. Market demand in the Shutters & Awnings (25% of EBITDA) Netherlands and France remained weak, Our operations in this division serve Outlook while activity in Germany, Belgium and the attractive RMI and residential While we are positive about the UK and Switzerland was more resilient. The UK end-use markets, supplying sun Switzerland in 2015, we expect France experienced robust growth, particularly protection, energy-saving, and outdoor to remain challenging, and are cautious in residential construction. With the living technologies. The Netherlands about the outlook for Germany and the benefit of new product innovation, business benefited from the introduction Netherlands. Given Europe Lightside’s market share gains and cost reduction of innovative new products with robust business mix, we anticipate initiatives, the Division achieved strong margins. The UK business also further organic growth in 2015, achieved substantial growth in both EBITDA and delivered improved sales and margins. through new products, maximising operating profit margins. In Germany, strong demand for our export opportunities and a continued Construction Accessories awnings products was offset by a RMI focus. This growth, combined with (55% of EBITDA) weaker performance in the shutters commercial and operational excellence business due to lower exports to France programmes, is expected to deliver This division supplies a broad range of and restructuring measures. Overall, further improvement in our operating connecting, fixing and anchor systems to like-for-like sales and operating profits profit in the year ahead. the construction industry. Like-for-like increased. sales grew by almost 6% in 2014, with a significant increase in operating profit. Fencing & Cubis (20% of EBITDA) Engineered Accessories benefited from Our Permanent Fencing business again new product innovation and previous experienced difficult markets, especially restructuring initiatives. Our businesses in the Netherlands, although a number in Germany and the UK delivered of initiatives contributed to improved
34 CRH Europe Distribution
Business Description
Europe Distribution’s strategy is to grow its network presence in the Market leadership positions largely unconsolidated core European markets while also investing in other Builders Merchants attractive segments of building materials distribution. Operational excellence is No.1 Austria delivered through optimising the supply No.1 Netherlands chain and providing superior customer No.1 Switzerland service. No.1 Northern Germany No.1 France: Burgundy, We have leading General Builders Merchant positions in the Netherlands, Franche-Comté, and Switzerland, northern Germany, Austria Rhône-Alps and France which service the growing No.2 Ile-de-France and repair, maintenance and improvement Normandy construction sector. Our businesses cater to the needs of small and medium- DIY sized builders, selling a range of bricks, cement, roofing and other building No.1 Netherlands* products. No.3 Belgium* No.5 Germany** Our specialist Sanitary, Heating and No.2 Portugal (50%) Plumbing (SHAP) business services the needs of plumbers, heating specialists * Member of Gamma franchise and installers in Belgium, Germany ** Member of Hagebau franchise and Switzerland. In addition, Europe Distribution operates under four SHAP DIY brands: GAMMA (Netherlands and Belgium), Karwei (Netherlands), No.2 Switzerland Hagebau (Germany) and Maxmat No.2 Belgium (Portugal) selling to DIY enthusiasts and No.3 Northern Germany home improvers. Significant opportunities remain to expand our existing network and to gain exposure to rising RMI demand and new growth platforms.
Europe Distribution employs over 11,600 people at more than 600 locations.
CRH 35 Europe Distribution | continued
Operations Review
Results Analysis of change
% Total Restructuring/ € million Change 2014 2013 Change Organic Acquisitions Impairment Pensions Exchange
Sales revenue 2% 3,999 3,936 63 7 41 - - 15
EBITDA* 2% 190 186 4 15 - - -11 -
Operating profit* 6% 112 106 6 14 -1 4 -11 -
EBITDA/sales 4.8% 4.7%
Operating profit/sales 2.8% 2.7%
* EBITDA and operating profit exclude profit on disposals Restructuring costs amounted to €4 million (2013: €4 million) No pension restructuring gains were recorded (2013: €11 million) No impairment charges were recorded (2013: €4 million)
With the benefit of mild weather in Professional Builders Merchants ahead of 2013 due to acquisition the early months of 2014, first-half (45% of EBITDA) contributions, while operating profit like-for-like sales increased by 4%. Overall operating profit for our wholly- improved following a continued focus Although the Netherlands saw some owned professional builders merchants on pricing, purchasing and cost control. recovery in consumer confidence as the business, which operates 343 branches Sales levels in Austria were slightly year progressed, financing conditions in six countries, was ahead of 2013. behind 2013, although operating profit remained tight; our other key markets, Mild first-quarter weather together was ahead due to measures taken to particularly Switzerland, France and with the incremental contribution from leverage the recently implemented ERP Germany, experienced more subdued acquisitions offset weaker demand as system. demand and intense competition. While the year progressed, resulting in full- sales in the third quarter declined by Sanitary, Heating and Plumbing year sales in line with the previous year. (“SHAP”) (25% of EBITDA) 4% on a like-for-like basis, by December Operating profit advanced mainly due to activity had flattened to a level similar procurement initiatives in the Benelux Sales in our SHAP business, which to last year, resulting in a full-year like- and France and ERP optimisation in operates 132 branches, were ahead of for-like sales outturn that was broadly Austria. Sales in the Benelux ended 2013 due to an organic improvement in similar to 2013. With the benefit of slightly ahead of 2013 due mainly to our Belgian businesses which continue procurement and other commercial our recent Belgian acquisitions with to perform strongly. Sales in our German excellence initiatives, and in spite of the operating profit well ahead as a result of business moderated in the second half, absence in 2014 of the once-off pension procurement and cost savings initiatives. finishing broadly in line with prior gain of €11 million reported in 2013, In Switzerland, sales finished slightly year. Due to the challenging market overall operating profit and margin was behind 2013, with the main driver conditions in Switzerland, results were ahead of last year. for lower sales being a softening of lower compared with 2013. Underlying operating profit for our SHAP activities Six builders merchants acquisitions local residential markets in particular; in 2014 was broadly in line with 2013 were completed in 2014 at a total cost of operating profit was impacted by lower as organic improvement in Belgium was €27 million. In the Benelux, we acquired volumes and pricing pressure partly offset by weaker Swiss results. seven branches mainly to expand coming from the strong Swiss Franc. our footprint in our growing builders Our builders merchants activities in DIY (30% of EBITDA) merchants platform in Belgium. We Germany made a strong start to the year Our wholly-owned DIY business also acquired two branches in northern in mild weather; this moderated as the operates 184 stores in the Netherlands, France, strengthening our network in year progressed leaving full-year sales Germany and Belgium. Similar to our Normandy. and operating profit slightly ahead of prior year. Sales in France were slightly other businesses, DIY made a strong start
36 CRH to 2014 with garden sales in particular Outlook another challenging year, but we expect benefiting from mild weather conditions. While the Dutch economy continues improved operating profit due mainly Despite improving consumer confidence to show progress, as seen in improving to further initiatives in commercial and and mild weather, competition remained consumer confidence indicators, operational excellence programmes and intense in the Dutch market with high underlying financing conditions remain our continued focus on cost-reduction levels of price discounting featuring somewhat constrained and therefore we measures. prominently during the year. Overall expect measured progress in 2015. The sales ended broadly in line with 2013 in German market outlook remains broadly both the Netherlands and Belgium. Sales positive despite some moderation in in our DIY business in Germany were economic growth. Markets in Austria higher than the previous year in part are expected to be flat in 2015. In due to recent greenfield investments. Switzerland, consistent with recent Overall operating profit for the DIY Euroconstruct indicators, residential business was ahead of the prior year markets in particular are expected to A customer service employee at the newly with weaker pricing in the Netherlands be subdued, so we remain cautious for opened 4,000 m2 GAMMA hardware store more than offset by cost savings 2015. Construction activity in France is in Alkmaar, the Netherlands, uses his DIY initiatives, lower restructuring costs and also expected to be constrained in the knowledge to assist a customer. a good performance in our German DIY near term. Overall 2015 is likely to be business.
CRH 37 ALASKA
BRITISH ALBERTA SASKATCHEWAN MANITOBA COLUMBIA
QUEBEC
ONTARIO
WASHINGTON NORTH DAKOTA MONTANA
MAINE
SOUTH DAKOTA 1 OREGON MINNESOTA NEW 2 IDAHO WYOMING WISCONSIN YORK 3 MICHIGAN 1. VERMONT IOWA 5 NEBRASKA 4 2. NEW HAMPSHIRE 3. MASSACHUSETTS OHIO PENNSYLVANIA 6 4. RHODE ISLAND NEVADA UTAH 5. CONNECTICUT
ILLINOIS 7 COLORADO INDIANA KANSAS MISSOURI 6. NEW JERSEY W.VIRGINIA 8 VIRGINIA 7. DELAWARE CALIFORNIA KENTUCKY 8. MARYLAND TENNESSEE N.CAROLINA OKLAHOMA ARKANSAS
GEORGIA ARIZONA NEW MEXICO S. CAROLINA LOUISIANA
TEXAS ALABAMA MISSISSIPPI
FLORIDA MEXICO (BAJA CALIFORNIA)
HAWAII
CHILE
ARGENTINA
38 CRH CRH in the Americas
CRH is the largest building materials company in North America. We operate across all 50 US states and in six Canadian provinces. In addition, we have operations in Baja California, Argentina and Chile. Our Americas operations comprise Materials, Products and Distribution Divisions. In Materials, we are the largest producer of asphalt and third largest producer of aggregates and readymixed concrete in the United States. Our Products operations, with their national footprint and broad product range, are the leading supplier of concrete products and architectural glazing systems in North America. In Distribution, we are a leading supplier of product to the specialist Exterior roofing/ siding contractor and also the Interior ceilings/walls demand segments. Close to 40,000 people are employed by CRH in the Americas at close to 1,800 locations.
Top: Employees safely excavate bulk sand at the Thompson-Arthur’s Candor Sand Plant in North Carolina. In 2014, the plant produced over 430,000 tonnes of product and employees celebrated 26 years of operating without a recordable, preventable, or lost time incident.
Centre: Oldcastle BuildingEnvelope® manufactured and supplied high- performance low-iron laminated architectural glass and engineered entrance and storefront aluminum glazing systems for the award winning 143,000 ft2 university building at the Rutgers University Business School in Piscataway, New Jersey.
Right: The Montebello branch is the largest branch in the AMS network. Servicing Los Angeles and the southwestern suburbs, it is the established market leader for the fabrication of doors, frames and hardware for commercial buildings in southern California.
CRH 39 Americas Materials
Business Description
Americas Materials’ strategy is to build strong regional leadership positions Market leadership positions Reserves underpinned by well-located, long-term reserves. We are the largest producer of Aggregates Physical Proven & Period to asphalt and the third largest producer location probable depletion of both aggregates and readymixed No.3 National Producer million tonnes years concrete in the United States. We Aggregates operate nationally in 44 states with Asphalt East 9,181 125 over 13 billion tonnes of permitted No.1 National Producer West 4,042 76 aggregates reserves of which circa 80% are owned. The business is vertically Equity Accounted Readymixed concrete integrated from primary resource Entities quarries into aggregates, asphalt and No.3 National Producer Aggregates 135 117 readymixed concrete products. With Cement 9 31 60% exposure to infrastructure, the business is further integrated into asphalt paving services through which it is the leading supplier of product to highway repair and maintenance demand in the United States. Our national network of operations and deep local market knowledge drive local performance and national synergies in procurement, cost management and operational excellence. In a largely unconsolidated sector where the top ten industry participants account for just 30% of aggregates production, 25% of asphalt production and 25% of readymixed concrete production, CRH’s strategy is to position the business to participate as the industry consolidates further. Americas Materials employs approximately 18,400 people at close to 1,200 operating locations.
The Shelly Company paved State Route 31 south of Kenton, Ohio, with asphalt using a “Flow Boy” trailer that holds 23 tonnes of product, which is 3 tonnes more than a typical truck load, improving efficiency. The “Flow Boy” trailers allow the asphalt to flow into the paver eliminating the need to raise the trailer bed and thereby reducing risk.
40 CRH Operations Review
Results Analysis of change
% Total Restructuring/ € million Change 2014 2013 Change Organic Acquisitions Divestments Impairment Exchange
Sales revenue 7% 5,070 4,721 349 317 37 -2 - -3
EBITDA* 9% 609 557 52 42 7 - 3 -
Operating profit* 57% 355 226 129 61 5 - 63 -
EBITDA/sales 12.0% 11.8%
Operating profit/sales 7.0% 4.8%
Restructuring costs amounted to €9 million (2013: €12 million) * EBITDA and operating profit exclude profit on disposals No impairment charges were recorded (2013: €60 million)
The commentary below excludes aggregates, readymixed concrete and the impact of impairment charges on paving operations, decreased by 2% and operating profit. 3% respectively. The price of energy used at our asphalt plants, consisting After the early months of 2014 which of fuel oil, recycled oil, electricity and were impacted by harsh winter weather, natural gas, remained flat. Recycled trading conditions improved as the year asphalt and shingles accounted for progressed, led by improved residential approximately 22% of total asphalt and non-residential segments and stable requirements in 2014, lessening demand infrastructure. Americas Materials on virgin bitumen. delivered another year of growth, with like-for-like sales revenues growing Aggregates: Like-for-like volumes 7% and overall EBITDA increasing 9% increased 6% from 2013 while total compared to 2013. Positive trends in volumes including acquisitions pricing continued for the third year in increased 10%. Average prices increased a row for aggregates and readymixed by 2% on a like-for-like basis and 1% concrete, with asphalt pricing also overall compared with 2013. These improving in 2014. price and volume increases, together with efficient cost control, resulted in Americas Materials completed eight improved margin for our aggregates acquisition transactions in 2014 at business. a total cost of €91 million, adding over 230 million tonnes of aggregates Asphalt: Volumes increased 5% on reserves, 2 operating quarries, 6 asphalt a like-for-like basis and 6% overall plants and 2 aggregates terminals, with compared to 2013. Volume increases annual production of 4.3 million tonnes together with pricing increases of 1% of aggregates and 0.2 million tonnes contributed to an overall asphalt margin of asphalt. In addition divestments expansion. during the year generated proceeds of Readymixed Concrete: Like-for-like €12 million. volumes increased 6% while total Energy and related costs: The price of volumes including acquisitions were up bitumen, a key component of asphalt 7% compared with 2013. Average prices mix, increased by 3% in 2014 following increased 4% on both a like-for-like and a 4% decrease in 2013. Prices for diesel an overall basis, contributing to margin and gasoline, important inputs to expansion for this business.
CRH 41 Americas Materials | continued
Paving and Construction Services: price gains building on strong operating With flat federal funding and pockets of and overhead cost management increased state infrastructure spending, across the product lines. Recovery in like-for-like sales increased 2% and construction margins provided very overall sales including acquisitions positive year-on-year improvements increased 3%. Bidding continued to from this line of business. Overall West be under pressure in a competitive volumes increased 15%, 4% and 9% environment. However, efficient cost ahead of 2013 for aggregates, asphalt controls enabled overall margin to and readymixed concrete respectively. improve by 0.5% in 2014. Outlook We expect that US GDP growth in Regional Performance 2015 will be similar to 2014 and that housing will continue to recover. We East (65% of EBITDA) also expect non-residential construction The East region comprises operations to show modest gains. Federal funding in 23 states, the most important of for infrastructure is expected to be flat which are Ohio, New York, Florida, in 2015. A more robust federal highway Michigan, New Jersey, Pennsylvania bill is being explored by Congress and and West Virginia. After a harsh winter, has the support of the President, but if the Northeast division was able to passed the impact would most likely be take advantage of favourable weather evident in 2016 and beyond. State fiscal and improving economic conditions conditions are improving with certain during the remainder of the year with states passing infrastructure funding operating profit growing strongly measures. compared with 2013. Operating profit We expect 2015 volumes for aggregates was more stable in the Mid-Atlantic and asphalt to show single-digit growth and Central divisions where very wet and readymixed concrete volumes to conditions hampered activity in the be up slightly more due to improving peak production months. The strong residential markets. Targeted price residential and non-residential markets increases in all product lines, in Florida contributed to higher combined with cost controls and volumes, better prices and margin stable/improving energy markets are growth in the Southeast division. expected to lead to another year of Overall operating profit for the East margin expansion in 2015. region was higher than in 2013, with overall volumes 7%, 6% and 5% ahead of prior year for aggregates, asphalt and readymixed concrete respectively.
West (35% of EBITDA) The West region has operations in 21 states, the most important of which are Utah, Texas, Washington, Iowa, Kansas and Colorado. All three divisions, Central West, Northwest, and Mountain West reported higher operating profit. Early season earnings improvements throughout the West continued into the autumn and early winter, with modest
42 CRH Americas Products
Business Description
Americas Products’ strategy is to In the context of the detailed review build a portfolio of businesses which of the portfolio undertaken by the Market leadership positions have leading market positions across Group during 2014, CRH announced a balanced range of products and in December 2014 that it had reached end-use segments. Our activities agreement to dispose of its Glen-Gery Concrete masonry, patio products and pavers are organised into three product clay business in the United States. The groups under the Oldcastle brand: transaction is expected to close in the No.1 Paving & patio: North America Architectural Products (concrete first quarter of 2015. No.1 Masonry: North America masonry and hardscapes, clay brick, A national business operating in 39 US packaged lawn and garden products, states, six Canadian provinces, Mexico Packaged cement mixes packaged cement mixes, fencing); and South America. CRH has the Precast (utility, drainage and structural breadth of product range and national No. 2 United States precast, construction accessories); footprint that combines providing a and BuildingEnvelope® (architectural national service to customers with Tiles glass and aluminium glazing systems). the personal touch of a local supplier. The Group’s commitment to Building No.1 Rooftiles: Argentina Focussing on strategic accounts and Better Businesses ensures a coordinated No. 2 Floor and wall tiles: Argentina influencers in the construction supply approach at national and regional chain, the Oldcastle Building Solutions levels to achieve economies of scale group provides an additional avenue Packaged lawn & garden products and to facilitate the sharing of best for growth as it is uniquely positioned practices which drive operational and No. 2 United States in the industry to create value for commercial improvement. Innovation is stakeholders across all phases of a hallmark of the business, and through Precast concrete products construction. Oldcastle’s North American research No.1 Precast concrete utility and development centres, a pipeline The number of employees in this products: North America of value-added products and design division totals approximately 17,700 at solutions is maintained. nearly 400 locations. Building envelope solutions
No.1 North America
Concrete accessories
No. 2 United States
Fencing products
No. 2 Fencing supplier: United States
Oldcastle Architectural supplied four different Trenwyth® masonry products to complete the interior and exterior renovation of the Lenoir-Rhyne University Chapel in Hickory, North Carolina, a gathering place at the center of the 123-year-old campus for its student and faculty population.
CRH 43 Americas Products | continued
Operations Review
Results Analysis of change
% Total Restructuring/ € million Change 2014 2013 Change Organic Acquisitions Divestments Impairment Exchange
Sales revenue 5% 3,225 3,068 157 169 75 -19 - -68
EBITDA* 7% 263 246 17 24 6 -1 -7 -5
Operating profit* 113% 145 68 77 24 2 - 50 1
EBITDA/sales 8.2% 8.0%
Operating profit/sales 4.5% 2.2%
Restructuring costs amounted to €18 million (2013: €11 million) * EBITDA and operating profit exclude profit on disposals Impairment charges of €14 million were incurred (2013: €71 million)
The commentary below excludes our footprint into the growing Texas Precast (20% of EBITDA) the impact of impairment charges on market; while five divestments in 2014 The Precast group manufactures a operating profit. generated net proceeds of €50 million. broad range of value-added concrete Our Products business in the Americas Architectural Products and polymer-based products primarily is located primarily in the United States (55% of EBITDA) for utility infrastructure applications. but also in Canada, Mexico and South In addition, the business is a leading APG is a leading supplier of masonry America. Construction activity in the manufacturer of accessories to the and hardscape products, packaged eastern and northern parts of North concrete construction industry. While lawn and garden products, clay brick America was hampered by unseasonably public infrastructure spend remained and fencing solutions. In addition to wintry weather into May. Good weather subdued, the business saw an otherwise contractor-based new construction, the in the second half of the year and an improved market environment in 2014 DIY and professional RMI segments ongoing pick-up in US macroeconomic and registered solid sales gains as are significant end-users. The business fundamentals, particularly stronger growth initiatives continued to deliver. benefited from improving private labour markets and consumer Operating profit increases were achieved residential and non-residential confidence, led to improved trading in most precast markets although construction and increasing RMI spend. results in the remainder of the year. selected areas were slow to recover from In general, activity was more robust in Overall like-for-like sales increased by the weather-impacted start to the year. the West and South, while trading in 6%. With improving market conditions, Our utility enclosures and construction the Midwest, Northeast, and Eastern input cost pressures accelerated but accessories businesses also continued Canada started slowly during the first were more than offset by the effects of to grow and improve. Overall, like-for- four months due to unseasonably improved operational efficiencies and like sales rose by 5%, operating profit bad weather. The strengthening targeted price increases. Combined was marginally ahead and backlogs housing market, together with product with the benefits of organic growth, cost continued to improve. innovation and commercial initiatives, reduction initiatives and contributions drove gains across nearly all business BuildingEnvelope® (20% of EBITDA) from acquisitions, Americas Products segments resulting in a 7% increase achieved a 7% increase in EBITDA and The BuildingEnvelope® group is in like-for-like sales compared with improved margins. North America’s leading supplier of 2013. While our markets remain architectural glass and aluminium Five bolt-on acquisitions were competitive, the combination of cost glazing systems that close the building completed in 2014 at a total spend of reduction measures and selected envelope. New non-residential building €60 million. The acquisition by our price improvements broadly offset the activity, a key market segment for this Architectural Products Group (“APG”) impact of higher input costs. Overall, business, experienced improved market of Hope Agri Products, a supplier of APG recorded strong improvements in conditions and healthy increases in packaged mulches and soils, extended operating profit and margin for the year. demand in 2014. Sales growth was
44 CRH also driven by ongoing initiatives to South America (5% of EBITDA) construction demand, we expect further gain market share and differentiate the Our South American operations were organic sales growth in 2015. Combined business through innovative product negatively impacted by challenging with the impact of 2014 acquisitions and and technology offerings. Organic sales economic conditions and operating divestments, and the benefits of internal rose 2%, slightly less than the overall profit was lower than in 2013. Slow growth and cost initiatives, we expect market, as our Engineered Glazing economic growth and high inflation led to record improved operating profit and Systems (“EGS”) division concentrated to lower volumes and higher operating margin in 2015. on completing existing major project costs in the Argentine clay products work. The Architectural Glass and businesses. Our Chilean business also Storefront division continued to benefit recorded reduced profits due to soft Oldcastle Architectural is a leading designer from an improved pricing environment, demand in a very competitive market. and manufacturer of high-quality, branded resilient non-residential RMI activity concrete outdoor living products. The local and a generally more favourable product Outlook Western Canadian business, Expocrete, ® mix. With a tight focus on cost control, Based on the improving macroeconomic manufactured this Belgard segmental product quality and improved processes, backdrop, which will benefit both retaining wall and paver system for a private the business delivered operating profit residential and non-residential residence in Vancouver, British Columbia. and margin improvements.
CRH 45 Americas Distribution
Business Description Operations Review
Americas Distribution, trading as The Interior Products business Market leadership positions Allied Building Products (“Allied”), continued to show growth as both experienced improved performance volumes and pricing improved Exterior Products across its activities in 2014, leading to throughout the year. The strongest strong overall reported results. Both gains were experienced in our Atlantic No.3 United States business divisions benefited from sales markets, in part due to the full-year growth providing increased operating effect of our prior year acquisitions, and Interior Products profit compared to 2013. Performance also the Southwest and West markets in our Exterior Products business was which were driven by multi-family No.3 United States led by strong demand in our Midwest construction. (Chicago) and Mountain (Colorado) In 2014, Allied management maintained markets aided by early storm activity. its focus on improving employee safety, Americas Distribution strategy is The Northeast and West Coast markets controlling variable costs, streamlining focussed on being the leading supplier experienced modest setbacks due to administrative procedures and to contractors of Exterior Products such the completion of Hurricane Sandy eliminating redundant processes. The as roofing and siding. We also apply this rebuilding efforts in New York/New simplification of our business processes, successful distribution model to Interior Jersey and exceptionally dry and along with the ongoing evolution of Products such as ceilings and walls. drought-like weather patterns our organisational structure and go-to- experienced in California. Demand in the Exterior Products market strategies, is aimed at improving business is largely influenced by residential and commercial replacement activity with the key products having an average lifespan of 25 to 30 years. Demand for Interior Products is driven by the new residential, multi-family and commercial construction markets. Through CRH’s commitment to continuous business improvement, we employ state-of-the-art IT systems, disciplined and focussed cash and asset management, and well-established procurement and commercial systems which support supply chain optimisation and enable us to provide superior customer service. Americas Distribution operates in 31 states, and growth opportunities include investment in new and existing markets, in complementary private label and energy-saving product offerings, and in other attractive building materials distribution segments that service professional dealer networks. The division employs approximately 3,800 people at close to 200 locations.
46 CRH Results Analysis of change
% Total € million Change 2014 2013 Change Organic Acquisitions Restructuring Exchange
Sales revenue 7% 1,776 1,664 112 80 33 - -1
EBITDA* 18% 105 89 16 14 1 1 -
Operating profit* 24% 83 67 16 15 - 1 -
EBITDA/sales 5.9% 5.3%
Operating profit/sales 4.7% 4.0%
* EBITDA and operating profit exclude profit on disposals No restructuring costs were recorded (2013: €1 million)
business integration and enhancing Exterior Products (60% of EBITDA) multi-family and commercial, with operating leverage, allowing for greater The Exterior Products business is limited exposure to the repair and economies of scale as our business, and largely comprised of both commercial remodel market. Performance in this the overall market, grows. and residential roofing, siding and business was strong in all markets with increased volumes and prices of core While no acquisitions were completed related products, and is the third largest products contributing to higher sales within the Americas Distribution group distributor in the United States. Exterior and improved operating margins. In in 2014, we have continued to build on Products demand is greatly influenced addition, a more favourable mix toward our organic greenfield and service centre by residential and commercial higher-margin core products combined strategy by opening six bolt-on locations replacement activity (75% of sales with efficiency initiatives implemented within some of our key existing markets. volume is RMI-related). Commercial in recent years, helped to drive Our service centre model enables us to roofing experienced modest industry- improved sales and operating profit improve customer service, consolidate wide growth while residential roofing for 2014. fixed costs and more efficiently leverage shipments saw a slight decline leading branch assets. Progress continued to to an overall flat market from 2013. Outlook be made in 2014 to increase brand As a result, product mix shifted more The overall outlook for 2015 is awareness of Tri-Built, our proprietary towards lower-margin commercial encouraging as commercial and private label brand, as both sales and products. Additionally, with no volume residential construction is expected to product offerings grew. The addition growth, markets across the industry grow. While headwinds are expected of our new service centre locations remained very competitive leading to continue in our Exterior Products combined with the continued growth of to pricing pressure in all regions. In business, as pricing pressures remain our Tri-Built private label brand and our spite of flat market conditions and the and only modest growth is expected, commitment to developing our people pressures mentioned above, the Exterior our Interior Products business continues continued to differentiate Allied in the Products division reported modest sales to experience favourable markets, marketplace. growth and operating profit just slightly behind prior year. with another year of sales and profit growth expected. Overall, the expected Interior Products (40% of EBITDA) benefits of the six service centre This photograph, featuring Tri-Built The Interior Products business, which additions in 2014 combined with our Building Wrap, appeared in a 2014 New is the third largest specialty distributor continued focus on efficiency and cost York Times article covering the restoration in the United States, sells gypsum control should provide a year of further of homes on the Jersey Shore following wallboard, acoustical ceiling systems improvement in operating performance Superstorm Sandy. Tri-Built Materials is and related products to specialised in 2015. part of the Allied Building Products private contractors. The primary market is new label offering. construction including residential,
CRH 47 CRH in Asia
NORTH EAST CHINA
CRH has a number of strategic footholds in Asia, following the establishment of entry platforms in China and India over the last seven years. Our strategy is to build select leading regional positions to enable us to benefit from industrialisation, urbanisation and population growth in these developing economies over the coming decades. The Group has a 26% stake in associate Yatai Building Materials, which is a market leader in building materials in Northeast China. In India, we have a 50% joint venture with My Home Industries Limited which is a leading player in the southern state of Andra Pradesh. In October 2013, we opened a regional headquarters in Singapore. The Group’s equity accounted operations in China and India employ circa 12,000 people.
SOUTHERN INDIA
MALAYSIA
SINGAPORE
AUSTRALIA
48 CRH China and India | Equity Accounted Investments
China In 2014, MHIL posted a 25% increase Market leadership positions Market conditions in China remained in volumes following the acquisition challenging during 2014 as government of Sree Jayajothi Cements Limited in policies to rebalance the economy late 2013 and has also made significant Cement gains in adjoining states. Prices were towards a more sustainable growth No.1 Andhra Pradesh and model impacted on industrial and under pressure in the first half due to Telangana, India (50%) real estate activity. This resulted poor demand, but improved later in the in a slowdown which created an year. Volume growth and acquisition No.1 North East China (26%) unfavourable short-term environment synergies resulted in higher trading for the construction sector. Profitability profit in 2014. at our 26% associate, Yatai Building Outlook Materials, which is a market leader in Northeast China with a capacity of In China trading conditions looking Reserves 32 million tonnes of cement, was affected forward are expected to recover as the by lower volumes and selling prices; country’s underlying urbanisation trends Physical Proven & Period to location probable depletion partially offset by improved operational drive investment in infrastructure and million tonnes years efficiencies and reduced costs. property. Business performance will be further helped by stricter government India measures to reduce overcapacity India (50%) 102 23 CRH has a cement capacity of 8 million combined with internal commercial and tonnes across three locations in southern operational excellence initiatives. India, where it operates through a 50% Demand for cement in India is expected joint venture; My Home Industries to show strong growth of over 8% with Pictured outside the My Home Industries Limited (“MHIL”). The regional market the government providing a boost to (MHIL) office, in Hyderabad, India, is the has a cement consumption of 75 million public infrastructure spending and Hyderabad Metro Rail, a rapid transit tonnes and MHIL is the market leader in various housing projects in both urban system currently under construction. the southern states of Andhra Pradesh and rural areas. To date, MHIL has supplied over 19,000 and Telangana. tonnes of cement to the project which is expected to be completed by July 2017.
CRH 49 Polbruk provided 2,000 m2 of durable, washed concrete pavers for the pathways surrounding the Musical Theatre development in Gdynia, Poland. This product is suitable for high levels of pedestrian traffic, while the rough textured finish contrasts with the building style to create a modern city look.
50 CRH Board of Directors
Nicky Hartery Skills and experience: Nicky was Vice President of Manufacturing and Business Operations for Dell Inc.’s Europe, Middle East and Africa (EMEA) Chairman operations from 2000 to 2008. Prior to joining Dell, he was Executive Vice Appointed to the Board: June 2004 President at Eastman Kodak and previously held the position of President and Chief Executive Officer at Verbatim Corporation, based in the United Nationality: Irish States. Qualifications: C.Eng, FIEI, MBA. Age: 63 External appointments: Chief Executive of Prodigium, a consulting Committee membership: Acquisitions company which provides business advisory services; non-executive director Committee; Finance Committee; of Musgrave Group plc, a privately-owned international food retailer, Nomination & Corporate Governance Eircom Limited, a telecommunications services provider in Ireland, and of Committee; Remuneration Committee Finning International, Inc., the world’s largest Caterpillar equipment dealer.
Albert Manifold Skills and experience: Albert was appointed a CRH Board Director in January 2009. He joined CRH in 1998. Prior to joining CRH, he was Chief Chief Executive Operating Officer with a private equity group. While at CRH, he has held Appointed to the Board: January 2009 a variety of senior positions, including Finance Director of the Europe Materials Division, Group Development Director and Managing Director Nationality: Irish of Europe Materials. He became Chief Operating Officer in January 2009 Age: 52 and was appointed Group Chief Executive with effect from 1 January 2014. Committee membership: Acquisitions Qualifications: FCPA, MBA, MBS. Committee
Maeve Carton Skills and experience: Since joining CRH in 1988, Maeve has held a number of roles in the Group Finance area and was appointed Group Controller Finance Director in 2001, Head of Group Finance in January 2009 and to the position of Appointed to the Board: May 2010 Finance Director in May 2010. She has broad-ranging experience of CRH’s reporting, control, budgetary and capital expenditure processes and has Nationality: Irish been extensively involved in CRH’s evaluation of acquisitions. Prior to Age: 56 joining CRH, she worked for a number of years as a chartered accountant in Committee membership: Acquisitions an international accountancy practice. Qualifications: MA, FCA. Committee; Finance Committee External appointments: Board member of the National Treasury Management Agency (NTMA), a state body that provides asset and liability management services to the Irish Government.
Mark S. Towe Skills and experience: Mark joined CRH in 1997 and was appointed a CRH Board Director with effect from July 2008. In 2000, he was appointed Chief Executive Officer Oldcastle, Inc. President of Oldcastle Materials, Inc. and became the Chief Executive Appointed to the Board: July 2008 Officer of this Division in 2006. He was appointed to his current position of Chief Executive Officer of Oldcastle, Inc. (the holding company for CRH’s Nationality: United States operations in the Americas) in July 2008. With over 40 years’ of experience Age: 65 in the building materials industry, he has overall responsibility for the Committee membership: Not Group’s aggregates, asphalt and readymixed concrete operations in the applicable United States and its products and distribution businesses in the Americas.
CRH 51 Board of Directors | continued
Ernst J. Bärtschi Skills and experience: Ernst was Chief Executive of Sika AG, a manufacturer of speciality chemicals for construction and general industry, Non-executive Director until 31 December 2011. Prior to joining Sika, he worked for the Schindler Appointed to the Board: October 2011 Group and was Chief Finance Officer between 1997 and 2001. Over the course of his career he has gained extensive experience in India, China and Nationality: Swiss the Far East generally. Qualifications: LIC.OEC.HSG. Age: 62 External appointments: Chairman of the Board of Directors of Conzetta Committee membership: Audit AG, a broadly diversified Swiss company, member of the board of Bucher Committee (Financial expert); Industries AG, a mechanical and vehicle engineering company based in Finance Committee Switzerland; member of the advisory board of China Renaissance Capital Investment Inc., a private equity investment company in Hong Kong, China.
William P. Egan Skills and experience: Bill is founder and General Partner of Alta Communications and Marion Equity Partners LLC, Massachusetts-based Non-executive Director venture capital firms. He is past Chairman of Cephalon Inc., and past Appointed to the Board: January 2007 President and Chairman of the National Venture Capital Association. He was until May 2014, director of the Irish venture capital company Delta Nationality: United States Partners Limited. Qualifications: BA, MBA. Age: 69 External appointments: He serves on the boards of several communications, Committee membership: Nomination cable and information technology companies. & Corporate Governance Committee; Remuneration Committee
Utz-Hellmuth Felcht Skills and experience: Utz-Hellmuth was, until May 2011, Chairman of the Supervisory Board of Süd-Chemie Aktiengesellschaft. He was also Chief Non-executive Director Executive of Degussa AG, Germany’s third largest chemical company, until Appointed to the Board: July 2007 May 2006, and a partner in the private equity group One Equity Partners Europe GmbH until July 2014. Nationality: German External appointments: Chairman of the Supervisory board of German rail Age: 67 company Deutsche Bahn AG and director of Jungbunzlauer Holding AG. Committee membership: Acquisitions Committee; Finance Committee
John W. Kennedy Skills and experience: John is past Chairman of Wellstream Holdings plc. In a 40 year career, he has served as Executive Vice President of Halliburton Non-executive Director Company, President of Dresser Enterprises and Chief Operations Officer of Appointed to the Board: June 2009 Brown and Root Services. He is a past director of the UK Atomic Energy Authority and Integra Group. Qualifications: M.Sc, BE, C.Eng, FIEE. Nationality: Irish External appointments: Non-executive Chairman of Lamprell plc; director Age: 64 of Maxwell Drummond International Limited and BiFold Group Limited. Committee membership: Acquisitions Committee; Finance Committee
Patrick J. Kennedy Skills and experience: Pat was Chairman of the Executive Board of Directors of SHV Holdings (SHV), a large family-owned Dutch multinational company Non-executive Director with a diverse range of operational and investment activities, including the Appointed to the Board: January 2015 production and distribution of energy, the provision of industrial services, heavy lifting and transport solutions, cash and carry wholesale and the Nationality: Irish provision of private equity. He retired from SHV mid-2014. During a 32 Age: 61 year career with SHV, he held various leadership roles across SHV’s diverse Committee membership: Acquisitions portfolio of businesses, while living in various parts of the world, and Committee; Audit Committee was a member of the Executive Board of SHV from 2001, before becoming Executive Chairman in 2006. Qualifications: MBS, BComm.
52 CRH Donald A. McGovern, Jr. Skills and experience: Don retired from PricewaterhouseCoopers (PwC) in June 2013, following a 39 year career with the firm. During that time Non-executive Director* he was Vice Chairman, Global Assurance at PwC, a position he had held Appointed to the Board: July 2013 since July 2008 and directed the US firm’s services for a number of large public company clients. He also held various leadership roles in PwC and Nationality: United States was, from July 2001 to June 2008, a member of, and past lead director for, Age: 63 the Board of Partners and Principals of the US firm as well as a member of Committee membership: Nomination PwC’s Global Board. Qualifications: CPA, MBA. & Corporate Governance Committee; External appointments: Director of Neuraltus Pharmaceuticals, Inc. Remuneration Committee * Don McGovern is Senior Independent Director
Heather Ann McSharry Skills and experience: Heather Ann is a former Managing Director Ireland of Reckitt Benckiser and Boots Healthcare and was previously a non- Non-executive Director executive director of Bank of Ireland plc and IDA Ireland. Appointed to the Board: February 2012 Qualifications: BComm, MBS. Nationality: Irish External appointments: Non-executive director of Greencore Group plc and Jazz Pharmaceuticals plc; Chairman of the Bank of Ireland Pension Fund Age: 53 Trustees Board; director of Ergonomics Solutions International and the Committee membership: Audit Institute of Directors. Committee; Finance Committee
Dan O’Connor Skills and experience: Dan is a former President and Chief Executive Officer of GE Consumer Finance - Europe and a former Senior Vice-President of GE. Non-executive Director He was Executive Chairman of Allied Irish Banks, p.l.c. until October 2010. Appointed to the Board: June 2006 Qualifications: BComm, FCA. Nationality: Irish External appointments: Director of Glanbia plc, an Irish food company and International Personal Finance plc, a consumer lending business. Age: 55 Committee membership: Nomination & Corporate Governance Committee; Remuneration Committee
Henk Rottinghuis Skills and experience: Henk has a background in distribution, wholesale and logistics. He was until 2010, Chief Executive Officer at Pon Holdings Non-executive Director B.V., a large, privately held international company which is focussed on the Appointed to the Board: February 2014 supply and distribution of passenger cars and trucks, and equipment for the construction and marine sectors. He was also a member of the Supervisory Nationality: Dutch Board of the Royal Bank of Scotland N.V. and the retail group Detailresult Age: 58 Groep. Qualifications: Masters degree in Dutch Law. Committee membership: Acquisitions External appointments: Chairman of the Supervisory Board of Stork Committee; Audit Committee Technical Services and member of the Supervisory Board of the retail group Blokker Holding B.V.
Lucinda Riches Skills and experience: Lucinda spent the majority of her career in investment banking, including 21 years in UBS Investment Bank and its predecessor Non-executive Director firms where she worked until 2007. She held senior management positions Appointed to the Board: March 2015 in the UK and the US, including Global Head and Chairman of UBS Capital Markets Group and Vice Chairman of the Investment Banking Division. Nationality: British Qualifications: Masters in Philosophy, Politics and Economics and a Masters in Age: 53 Political Science. Committee membership: Nomination External appointments: Non-executive director of UK Financial Investments & Corporate Governance Committee; Limited, which manages the UK government’s investments in financial Remuneration Committee institutions. She is also a non-executive director of Diverse Income Trust plc, Graphite Enterprise Trust plc, the British Standards Institution and a non- executive member of the Partnership Board of King & Wood Mallesons LLP. She is also a trustee of Sue Ryder.
CRH 53 Governance Corporate Governance Report
Contents
Page
Corporate Governance Report 54 Chairman’s Introduction Chairman’s Introduction 56 Stock Exchange Listings and Corporate Governance Codes 56 Board of Directors 56 Responsibilities 56 Roles of Chairman and Chief Executive The following report outlines our Nicky Hartery 56 Membership Chairman approach to corporate governance and 57 Succession and diversity how we implement the 2012 57 Independence UK Corporate Governance Code (the 57 Chairman 2012 Code). 58 Senior Independent Director 58 Company Secretary The reports from the Chairmen of 58 Terms of appointment of non-executive Audit, Nomination & Corporate Directors Governance and Remuneration 58 Induction, training and development Committees on pages 61, 66 and 73 58 Performance appraisal and Board evaluation respectively highlight the key areas of 58 Directors’ retirement and re-election focus for, and the background to the 59 Board meetings principal decisions taken by, those 59 Board agendas Committees. 60 “Fair, Balanced and Understandable” process In relation to 2014, we complied in full 60 Securities dealing policies and codes with the provisions of the 2012 Code. 61 Audit Committee We also have procedures in place for 66 Nomination & Corporate Governance Committee compliance with our obligations under 68 Remuneration Committee the applicable rules and regulations 68 Acquisitions Committee issued by the United States Securities 68 Attendance at Board/Committee meetings and Exchange Commission. 69 Finance Committee 69 Risk Management and Internal Control Board Renewal and Re-election 69 Compliance & Ethics We have recently appointed two new 70 Sustainability and Corporate Social non-executive Directors to the Board. Pat Responsibility Kennedy, former Chief Executive of SHV 70 Substantial Holdings Holdings, a large family owned Dutch 70 Communications with Shareholders multi-national company with a range of 71 General Meetings 71 Memorandum and Articles of Association operational and investment activities, 71 Going Concern was appointed in January 2015. Lucinda 71 Documents and presentations available Riches, who spent the majority of her on CRH website career in investment banking, including 72 Directors’ Remuneration Report 21 years in UBS Investment Bank and 73 Statement from Committee Chairman its predecessor firms where she worked 75 Annual Statement on Remuneration in senior management positions in the 90 Directors’ Remuneration Policy Summary UK and the US, will join the Board 96 Directors’ Report with effect from 1 March 2015. Their biographies, along with those of the
CRH plc has a secondary listing on the Irish Stock other Board members are set out on Exchange. For this reason, CRH plc is not subject to the pages 51 to 53. The Group’s approach same ongoing listing requirements as would apply to an Irish company with a primary listing on the Irish Stock to Board renewal and succession Exchange. For further information, shareholders should planning is set out on page 57 and in the consult their own financial adviser. Further details on the Nomination & Corporate Governance Group’s listing arrangements, including its premium listing on the London Stock Exchange, are set out on page 56. Committee section.
54 CRH Last year, I reported that the Board Talent Management / Succession Planning Report, taken as a whole, is “Fair, had set itself the goal of increasing the Throughout its history, CRH’s approach Balanced and Understandable”. The number of female Directors to circa to recruiting, developing and retaining Board has put in place a robust process 25% of the Board by the end of 2015. talented executives has resulted in to ensure this concept is taken into In this regard, I am pleased to report a long standing tradition of making account throughout the drafting and that, following the 2015 Annual General internal appointments for critical senior review stages. This process is outlined Meeting, to be held in early May, one roles and is an important component on page 60. quarter of the Board will be female. in the achievement of the Group’s Conclusion strategic priorities. Nevertheless, the In relation to each of the Directors As a Board, we are committed to a Board recognises that CRH’s evolving putting themselves forward for re- process of continued improvement organisation structure and the expansion election at the 2015 Annual General in our collective effectiveness. In this of the Group’s geographic footprint over Meeting, I have conducted a formal regard, I look forward to the feedback time will bring additional challenges. In evaluation of the performance of each from our upcoming external evaluation this regard, we will be working with the Director, which included training process. Chief Executive and the Group Human needs where appropriate. I can confirm Resources and Talent Development that each of the Directors continues to Director to take a fresh look at our perform effectively and to demonstrate Nicky Hartery processes in 2015 and the coming strong commitment to the role. Chairman years to ensure we have a pipeline of February 2015 As referred to in my introduction to the executives at all levels to match our Annual Report on page 3, John Kennedy needs. and Dan O’Connor, after many years’ Shareholder Engagement and Reporting service to CRH, will retire from the This year the Senior Independent Board following the conclusion of the Director and I will again hold meetings 2015 Annual General Meeting. with large shareholders prior to the Board Effectiveness and Training Annual General Meeting to discuss During the course of 2015, an any areas of concern in relation to external consultant will be engaged to the agenda for that meeting or other facilitate the external evaluation of the topical governance-related matters. effectiveness of the Board. The external We appreciate the level of interest and evaluation will supplement our existing engagement in this process, which internal evaluation processes, details provides us with an insight into of which are set out on page 58. The the views of shareholders on CRH’s last externally facilitated evaluation governance structures and in relation was carried out in 2012. Also this year, to recent or upcoming developments in together with Don McGovern who took this area. I am always available to meet over as Senior Independent Director in with shareholders outside of this process January 2015, I will be reviewing the should the need arise. training arrangements we have in place As was the case last year, in accordance for Directors with a view to partnering with the 2012 Code, the Directors’ with an external firm to provide a range Report contains confirmation that the of programmes which Directors can avail Directors believe that the 2014 Annual of on an ongoing basis.
CRH 55 Corporate Governance Report | continued
Stock Exchange Listings and Corporate of the Group’s risk management and internal size of the Board is sufficiently large to enable Governance Codes control systems has been delegated to the its Committees to operate without undue Audit Committee*, the Board retains ultimate reliance on individual non-executive CRH, which is incorporated in Ireland and responsibility for determining the Group’s Directors, while being dynamic and subject to Irish company law, has a premium “risk tolerance” and annually considers responsive to the needs of the Group. The listing on the London Stock Exchange, a a report in relation to the monitoring, spread of nationalities of the Directors reflects secondary listing on the Irish Stock Exchange controlling and reporting of identified risks the geographical reach of the Group and we and its American Depositary Shares are listed and uncertainties. In addition, the Board consider that the Board as a whole has the on the New York Stock Exchange. receives regular reports from the Chairman appropriate blend of skills, knowledge and This Report describes CRH’s governance of the Audit Committee in relation to the experience, from a wide range of industries, principles and practice and the Group’s risk work of that Committee in the area of risk regions and backgrounds, necessary to lead management and internal control systems. management. the Group. The Report also sets out how CRH applies the Individual Directors may seek independent None of the executive Directors is a non- main and supporting principles of the 2012 professional advice, at the expense of the executive director of another listed company. UK Corporate Governance Code (the 2012 Company, in the furtherance of their duties as Code). The current membership structure of the a Director. Board is set out in table 3. A copy of the 2012 Code can be obtained from The Group has a Directors’ and Officers’ the Financial Reporting Council’s website, Liability insurance policy in place. www.frc.org.uk. Board of Directors How do the roles of the Chairman and Chief Executive differ? What are the responsibilities of the Board? Chairman is responsible for Table 2 It has been CRH’s practice since the formation of the Group in the 1970s that the The efficient and effective working of The Board is responsible for the leadership, roles of Chairman and Chief Executive are the Board oversight, control, development and not combined. long-term success of the Group. It is also responsible for instilling the appropriate Ensuring that Board agendas cover the key strategic issues confronting the Group, culture, values and behaviour throughout The Board has delegated responsibility for the the organisation. that the Board reviews and approves management of the Group, through the Chief management’s plans for the Group and that Executive, to executive management. There the Directors receive accurate, timely, clear is a clear division of responsibilities between There is a formal schedule of matters reserved and relevant information to the Board for consideration and decision. the roles of the Chairman and the Chief Executive, which is set out in writing and has This includes the matters set out in table 1. Making certain that the Board applies been approved by the Board. A summary of suffcient challenge to management the respective roles is set out in table 2. Matters Reserved proposals and examines and reviews Table 1 to the Board management performance in meeting What is the membership structure agreed objectives and targets Appointment of Directors of the Board? Strategic plans for the Group Overseeing the search for new Board members Annual budget It is CRH’s practice that a majority of the Major acquisitions and disposals Board comprises non-executive Directors. Chief Executive is responsible for Significant capital expenditure Full day-to-day operational and Approval of the Annual Report At present, there are three executive and profit performance of the Group and ten** non-executive Directors. Biographical Approval of the Interim Results accountability to the Board for all authority details are set out on pages 51 to 53. Non- delegated to executive management Issuance of guarantees executive Directors are expected to challenge management proposals constructively and to Executing strategy agreed with the Board examine and review management and reporting regularly on the progress and The Group’s strategy, which is regularly performance in meeting agreed objectives and performance of the Group reviewed by the Board, and its business targets. In addition, they are expected to draw model are summarised in the Strategic Report on their experience and knowledge in respect Co-ordinating and overseeing the profitable on pages 7 to 15. of any challenges facing the Group and in growth of the Group’s diverse portfolio of The Board has delegated some of its relation to the development of proposals on international businesses responsibilities to Committees of the Board. strategy. Maximising the contribution of senior The work of each Committee is set out We consider the current size and composition management to business planning, on pages 61 to 69 of this Report. While of the Board to be within a range which is operational control and profit performance responsibility for monitoring the effectiveness appropriate. We also believe that the current
* In accordance with Regulation 91(6)(b) of the European Communities (Statutory Audits) (Directive 2006/43) Regulations 2010. ** Will increase to 11 with effect from 1 March 2015 and reduce to 9 following the conclusion of the 2015 Annual General Meeting.
56 CRH Corporate Governance Report | continued
–– international business experience, Membership of the CRH Board Table 3 particularly in the regions in which the Group operates or into which it intends to Independence Tenure of non-executive Directors expand; (determined by CRH Board annually) (excluding Chairman) –– skills, knowledge and expertise in areas relevant to the operation of the Board; –– diversity, including nationality and gender; and 23% –– the need for an appropriately sized Board. 34% 33% During the ongoing process of Board renewal, each, or a combination, of these factors can take priority. 77% In 2014, the Board set itself the goal of 33% increasing the number of female Board members to circa 25% by the end of 2015. Following the 2015 Annual General Meeting, Independent 0-3 years 6-9 years this objective will have been achieved. Non-independent 3-6 years What criteria are used to determine the independence of non-executive Gender Diversity Geographical Spread (by residency) Directors?
The Board considers the principles relating to independence contained in the 2012 Code, 8% together with the guidance provided by a 15%* 23% number of shareholder voting agencies, and takes into account a Director’s character, objectivity and integrity. 38%
85% 31% The independence of non-executive Board members is considered annually. The Board is assisted in this by the annual review carried out by the Senior Independent Female Ireland UK Director which addresses the independence Male Mainland Europe US of the individual members of the Board, and by the work of the Nomination & Corporate *25% following 2015 Annual General Meeting Governance Committee, which annually reviews each Board member’s directorships, and considers any relevant business relationships between Board members. We in respect of appointments made since the have concluded that all of the non-executive How does the Board plan for 2013 Annual Report was published is set out Directors bring independent judgement to succession and what is its policy on in the Chairman’s introduction to the bear on issues of strategy, performance, diversity? Nomination & Corporate Governance resources, key appointments and standards, Committee’s Report on page 66. and have determined that each of the non-executive Directors is independent. External consultants are engaged for The Board plans for its own succession with executive Director recruitment if, and when, the assistance of the Nomination & required. In the case of the Chief Executive When was the Chairman appointed Corporate Governance Committee. role, the Board appoints a succession and does he have committee of long standing non-executive non-CRH commitments? For non-executive appointments, Directors, when required. The incumbent independent consultants are normally Chief Executive generally acts as advisor to engaged to search for suitable candidates. that committee. While the Chairman holds other directorships (see details on page 51), the The process to identify, evaluate and appoint We are committed to ensuring that the Board Board considers that these do not interfere a non-executive Director with the suitable is sufficiently diverse and appropriately with the discharge of his duties to CRH. experience, skills and time commitment balanced. In its work in the area of Board takes into account both the needs of CRH renewal, the Nomination & Corporate and the tenure and skills of existing Board Governance Committee looks at the Nicky Hartery was appointed Chairman of the members. As a result, Board renewal and the following four criteria when considering Group in 2012. On his appointment as appointment of non-executive Directors is a non-executive Director candidates: Chairman, he met the independence criteria continuous process. The process put in place set out in the 2012 Code. During 2014, Nicky
CRH 57 Corporate Governance Report | continued
joined the Board of a Canadian listed Board, to commit the time required to fulfil company. The Board has satisfied itself that How are the induction, training the role and to listen to and respect the views this would not impact on his role as CRH and development needs of of other Directors and the management team. Chairman. Directors catered for? As part of that review process the Chairman discusses with each individual their training In February 2015, the Board considered the and development needs and, where outcome of the annual review, carried out by appropriate, agrees suitable arrangements to the Senior Independent Director, of the The Chairman agrees a tailored and be put in place to address those needs. performance of the Chairman, whose initial comprehensive induction programme with term of office is due to expire at the each new Director. The Senior Independent Director conducts an conclusion of the Annual General Meeting in annual review of Board Effectiveness and the May 2015. The Board, chaired by the Senior balance of skills, experience, independence New Directors are provided with extensive Independent Director for this purpose, and knowledge of the Company on the Board, briefing materials on the Group and its resolved that Mr. Hartery’s term in office be the operation and performance of the operations, the procedures relating to the extended for a further three years. Chairman, the Board and its Committees and Board and its Committees and their duties the effectiveness of Board communications. and responsibilities as Directors under This is achieved through discussion in one-to- legislation and regulations that apply to the Who is the Senior Independent one sessions with each Director, aided by the Company. Director? completion by each Director of a A typical induction programme, which questionnaire in advance. The meetings, generally takes place over the first year of a which cover specific topics and allow for The Senior Independent Director is available Director’s appointment, would cover the free-ranging discussion, provide a forum for to shareholders who have concerns that topics set out in table 4. an open and frank discourse. The Senior cannot be addressed through the Chairman, Independent Director circulates a written Chief Executive or Finance Director. Sessions are held periodically with the report to the Board, which summarises the Chairman at which progress is reviewed and outcome of the review and sets out any feedback is sought. recommendations from Board members in Don McGovern was appointed as Senior For newly-appointed members of the Audit relation to areas where improvements can be Independent Director in January 2015. Committee, additional training arrangements made. Consideration of the Senior include the topics set out in table 5. Independent Director’s report is a formal Who is the Company Secretary? agenda item at a scheduled Board meeting. Members of the Audit Committee receive periodic updates on accounting developments. When was the last external Board All Directors have access to the advice and evaluation completed and services of the Company Secretary, who is Directors can also avail of opportunities to what was the outcome? responsible to the Board for ensuring that hear the views of, and meet with, the Group’s Board procedures are complied with. shareholders. Directors regularly receive copies of research and analysis conducted on CRH and the building materials sector. The The 2012 evaluation was facilitated by Neil Colgan was appointed Company Board receives regular updates from the ICSA Board Evaluation, which has Secretary in June 2009. The appointment and external auditors in relation to regulatory and an extensive record in facilitating removal of the Company Secretary is a matter accounting developments. Updates in relation evaluations in large listed companies for the Board. to other relevant matters, for example, both in Ireland and the UK. changes in company law, are provided from time to time. For what period are non-executive An externally facilitated Board evaluation Directors appointed? was carried out by an independent third What processes are in place for party, ICSA Board Evaluation in 2012, the appraising the performance of outcome of which was very positive. The Non-executive Directors are typically Directors and for evaluating the recommendations were reported in the 2012 expected to serve two three-year terms, effectiveness of the Board and its Corporate Governance Report, a copy of although they may be invited by the Board Committees? which is available on the CRH website. The to serve for further periods. next external evaluation will be conducted during 2015. An annual review of individual Directors’ The standard terms of the letter of performance is conducted by the Chairman What are the requirements appointment for non-executive Directors, and each Director is provided with feedback regarding the retirement and which states that they are generally expected gathered from other members of the Board. re-election of Directors? to serve two terms of three years, are available for inspection at the Company’s registered office and at the Annual General Meeting. A The performance of individual Directors is non-executive Director’s term of office is assessed against a number of measures, All Directors retire at each Annual General subject to his/her annual re-election by including the ability of the Director to Meeting and, unless they are stepping down shareholders and the letter of appointment contribute to the development of strategy, to from the Board, submit themselves to does not provide for any compensation for understand the major risks affecting the shareholders for re-election. loss of office. Group, to contribute to the cohesion of the
58 CRH Corporate Governance Report | continued
Re-appointment of Directors retiring at Induction Programme Table 4 Annual General Meetings is not automatic. Board Members Directors who are seeking re-election are subject to a satisfactory performance Topic Sessions with appraisal. All Directors are subject to the Memorandum and Articles of Association of Group strategy and finance: the Company (a summary of provisions in the Memorandum and Articles of Association –– Group strategy, the current challenges facing the Group and Chief Executive, Finance relating to the Directors is set out on page 71). the trading backdrop Director, senior fnance and treasury management –– Financial reporting, trading results, acquisition models, How often does the Board meet? funding sources/debt maturity, group treasury and credit rating metrics
Details of the number of Board and Divisional strategy and structure: Committee meetings during 2014, and of –– Divisional strategy and organisational structure Chief Executive, Heads of Directors’ attendance at those meetings, is Divisions and senior set out in table 11 on page 68. –– Development priorities operational management –– IT strategy There were eight full meetings of the Board during 2014. Senior management team: Each year, additional meetings, to consider –– Succession planning Chief Executive and Group specific matters, are held if and when Human Resources and –– Leadership development programmes required. Prior to their appointment, potential Talent Development Director non-executive Directors are made aware of –– Remuneration trends the calendar of meetings and are asked to confirm that they are able to allocate sufficient Directors’ legal duties and responsibilities: time to meet the expectations of their role. The agreement of the Chairman is required Finance Director, Company –– Legal duties and responsibilities before a Director accepts additional Secretary and the Group’s –– Management of inside information commitments that might impact adversely on legal advisers the time he or she is able to devote to CRH. –– Dealings in CRH securities The Board typically makes two visits each –– Listing rule requirements year to Board operations; one in Europe and one in North America. Each visit lasts Compliance & ethics, health & safety, risk management, between three and five days and incorporates investor relations and remuneration: a scheduled Board meeting. In 2014, these visits were to Amsterdam in the Netherlands –– Compliance & ethics policies and the structures in place to Finance Director, executives and Los Angeles in the United States. ensure ongoing compliance responsible for the relevant area, the Group’s –– Health & safety programme, including the fatality elimination stockbrokers and the How are Board programme, and the Group’s Corporate Social Responsibility Remuneration Committee’s agendas determined? policies remuneration advisors –– Investor Relations programme and the views of the Group’s major investors The Chairman sets the agenda for each –– Enterprise Risk Management, insurance arrangements and meeting in consultation with the Chief captive insurance programme Executive and Company Secretary.
Audit Committee Table 5 In setting the agendas, the Chairman ensures that sufficient time is allocated to strategy setting and review, performance monitoring, Topic Sessions with portfolio management, including acquisitions and divestments, succession planning and External Audit talent management. Board agendas typically –– Audit planning cover items set out in table 6 on page 60. –– Auditors’ responsibilities Finance Director, senior The non-executive Directors regularly meet fnance management, before or after each Board meeting without Head of Internal Audit and executives being present. Internal Audit external auditors –– Strategy and workplan The papers for meetings are generally circulated electronically in the week prior to –– IT audit the meeting.
CRH 59 Corporate Governance Report | continued
provide guidance regarding developments. In Typical Board Agenda Items Table 6 the case of the Annual Report, to facilitate Recurring items on each agenda: each Director’s individual review, the draft document is circulated to Board members –– Minutes circa two weeks prior to the finalisation of the –– Board matters (including Board report. Committee updates) –– Trading results Are the Directors subject to securities dealing policies –– Acquisitions/Disposals/Capital or codes? Expenditure Projects
Periodic agenda items during the year: Directors are required to obtain clearance –– Group strategy and Divisional strategy from the Chairman and Chief Executive updates before dealing in CRH securities. –– Group budget
–– Full-year/interim fnancial results and Details of the CRH shares held by Directors reports are set out on page 85. CRH has a policy on –– Investor interaction and feedback dealings in securities that applies to all Directors and senior management. Directors –– Performance review of acquisitions and senior management are prohibited from against the original Board proposal following three years of Group ownership dealing in CRH securities during designated prohibited periods and at any time at which –– Funding proposals the individual is in possession of inside –– Human resources and succession information (as defined in the Market Abuse planning (Directive 2003/6/EC) Regulations 2005). The policy adopts the terms of the Model Code, as –– Risk management and internal controls set out in the Listing Rules published by the –– Compliance & Ethics UK Listing Authority subject to amendments in relation to Irish company law and taxation –– Health & Safety review, with a particular references. focus on the Group’s fatality elimination programme What are the Committees of –– Environmental review the Board?
The Board has established five permanent How does the Board ensure its Committees to assist in the execution of its reports are “Fair, Balanced and responsibilities. Understandable”?
The current permanent Committees of the The Board collectively determines whether Board are the Acquisitions Committee, the or not it is appropriate to include in the Audit Committee, the Finance Committee, the Annual Report a statement that the Board Nomination & Corporate Governance considers the document, taken as a whole, Committee and the Remuneration Committee. to be “Fair, Balanced and Understandable”. In addition, ad-hoc Committees are formed from time to time to deal with specific matters. Each of the permanent Committees The Group’s Financial Reporting and has terms of reference, under which authority Disclosure Group (“FRADG”) reviews draft is delegated to them by the Board. The disclosures such as the annual and interim Chairman of each Committee reports to the reports, and meets with the Finance Director Board on its deliberations and minutes of all to discuss proposed disclosures, in the Committee meetings are circulated to all context of whether draft reports fulfil the Directors. criteria of being fair, balanced and The current membership of each Committee understandable. The conclusions of the and each member’s length of service is set out FRADG are reported to the Board. To ensure in the relevant sections in the remainder of the Group’s disclosures are in line with this report. Attendance at meetings held in evolving best practice in this area, the 2014 is set out in table 11 on page 68. FRADG, which is made up of executives with responsibilities across a range of functions, Chairmen of the Committees attend the regularly receives feedback from external Annual General Meeting and are available to experts who review published documents and answer questions from shareholders.
60 CRH Audit Committee
The Audit Committee currently consists of four Chairman’s overview non-executive Directors considered by the Board to be independent. The biographical details of each member are set out on pages 51 to 53. Together the members of the Committee bring a On behalf of the Audit Committee, broad range of experience and expertise from a Ernst Bärtschi Chairman of Audit Committee I am pleased to introduce the Audit wide range of industries which is vital in supporting Audit Committee Financial Expert effective governance. Committee Report for the year ended The primary responsibilities of the Committee 31 December 2014. The non-executive are to: Directors who were members of the –– monitor the fnancial reporting process, the Committee during 2014, together with integrity of the fnancial statements, including their record of attendance at Committee the Annual and Interim Reports, preliminary meetings, are identified in table 11 results announcements, interim management on page 68. A summary of recent and statements and any other formal announcement relating to the fnancial performance of the upcoming changes to the membership Company, and to review signifcant fnancial of the Audit Committee is set out in reporting issues and judgements exercised in the Chairman’s overview section of the the preparation thereof; Nomination & Corporate Governance –– monitor the audit of the fnancial statements; Committee Report on page 67. –– keep under review the effectiveness of the Company’s internal fnancial controls and the Financial Reporting and External Audit internal control and risk management systems In July 2014, the Committee met and review and approve statements to be with Ernst & Young to agree the 2014 included in the Annual Report regarding internal control and risk management; external audit plan. Table 7 on page 63 outlines the key areas identified as being –– review the Company’s arrangements for its employees to raise concerns, in confdence, potentially significant and how they about possible wrongdoing in fnancial reporting were addressed by the Committee. or other matters and review the Company’s procedures and systems for detecting fraud and Impairment Testing / Accounting preventing bribery; for Divestments –– keep under review the adequacy of the Group’s The Committee reviewed management’s compliance and ethics function; goodwill impairment testing –– monitor and review the effectiveness of the methodology and process, through internal audit function; discussion with both management –– review the effectiveness of the audit process and and Ernst & Young, and found the the independence and objectivity of the external methodology to be robust and the results auditors; of the testing process appropriate. –– develop and monitor the policy on non-audit services to be provided by the external auditors; The Committee also reviewed the re-assessment of the carrying value –– approve the remuneration and terms of engagement of the external auditors; of the business units identified for divestment in 2013 (in respect of which –– make recommendations to the Board in relation to the appointment or removal of the external an impairment charge of €683 million auditor; was recorded in the 2013 Consolidated –– report to the Board on how it has discharged its Financial Statements). No goodwill responsibilities. impairments or reversal of previous The responsibilities of the Audit Committee are set impairments were recorded during the out in full in its Terms of Reference, which are year (see note 14 on pages 128 to 130 for available on the CRH website, www.crh.com. more details). However, a number of the business units identified for divestment met the ‘held for sale’ criteria contained within IFRS 5 Non-current Assets Held for Sale and Discontinued Operations at 31 December 2014 and have been
CRH 61 Corporate Governance Report | continued
re-classified as such in the Consolidated Committee has again recommended to Financial Statements (see note 4 on Board that the continuance in office of page 120 for more details). Ernst & Young should be subject to a non-binding advisory vote at the 2015 Enterprise Risk Management Annual General Meeting. During 2014 the Committee received and considered an update from management Further details in relation to the external on progress in respect of the ongoing auditors, including information on how development of the Group’s enterprise auditor objectivity and independence are risk management framework, which maintained and how the effectiveness included detailed reports identifying of the external audit is assessed, are the key risks at Divisional and Group included on pages 64 and 65. level and the related mitigation steps. Audit Committee Effectiveness and The Committee also considered an Priorities for 2015 annual report on the assessment of During 2014 the Committee, together risk management and internal control with the Finance Director and Company systems. This had regard to all material Secretary, carried out a review of controls, including financial, operational the operation of the Committee. and compliance controls that could This involved an assessment of affect the Group’s business. Further the Committee’s primary role and details in relation to the Group’s risk responsibilities, training arrangements management and internal control for Committee members, the time systems are set out on page 69. allocated for consideration of key External Auditors issues, the format and content of the Ernst & Young have been the Group’s information provided to the Committee auditors since 1988. In last year’s and the priorities for 2015 and onwards. report, I informed shareholders that A number of helpful recommendations the Committee had deferred making a resulted from the process which decision on the timeframe for putting I believe will further improve the the external audit out to tender until efficiency and effectiveness of the the finalisation of EU legislation on Committee. the reform of the audit sector. This The key areas of focus for the Committee EU legislation, which includes a in 2015 will be on internal control, requirement for mandatory auditor external audit planning, IT governance, rotation and will necessitate, in the cyber security and risk management. case of CRH, an audit tender by the end of 2020, was enacted in June 2014. However, taking into account Ernst Bärtschi the differing requirements of the EU Audit Committee Chairman legislation and the 2012 Code (the February 2015 current provision in the 2012 Code which would require a tender process in 2015 remains in place), and the organisational change in Europe (see page 30), the Committee has determined that it is not in the best interests of the Group to carry-out a tender at this time. The Committee will continue to review this position on an ongoing basis. In the interim, the
62 CRH Corporate Governance Report | continued
Audit Committee Members Areas identified for focus during the 2014 Audit Planning Process Table 7 The biographies of the members of the Audit Committee are set out on pages 51 to 53. Area of Focus Audit Committee Action The tenure of each Committee member is as follows:
Impairment of For the purposes of its annual impairment testing process, the Group E.J. Bärtschi 3 years goodwill assesses the recoverable amount of each of CRH’s cash-generating units (CGUs – see details in note 14 to the Consolidated Financial H.A. McSharry 3 years Statements) based on a value-in-use computation. The annual goodwill H. Th. Rottinghuis 0.75 years impairment testing was conducted by management and papers outlining the methodology and assumptions used in, and the results of, that assessment were presented to the Audit Committee. Following its Mr. P.J. Kennedy joined the Committee deliberations, the Audit Committee was satisfed that the methodology with effect from 25 February 2015. used by management (which was consistent with prior years) and the Mr. E.J. Bärtschi has been designated by results of the assessment, together with the disclosures in note 14, were appropriate. the Board as the Committee’s Financial Expert. A separate assessment was carried out in 2014 in respect of the business units identifed in 2013 for divestment as part of the The Committee reviewed its Terms Group-wide portfolio review initiated in November of that year. A total of Reference in December 2014 and impairment charge of €683 million (of which €315 million related to determined that no changes were goodwill) was recorded in the 2013 Consolidated Financial Statements. required. The Terms of Reference, which The valuation of each business unit (based on the estimated fair value were last updated in December 2013, are less costs of disposal) at year-end 2013 was reassessed in 2014 on a available on the CRH website. standalone CGU basis. The revised valuations were then compared with the carrying value of each business. The Audit Committee Committee meetings reviewed and considered the methodology used by management in the The Committee met ten times during reassessment process and was satisfed that it was appropriate. 2014, with meetings held to coincide with key dates in the financial reporting and audit cycle. The Finance Director Impairment of In addition to the goodwill impairment testing process discussed and the Head of Internal Audit generally property, plant above, the Group also annually assesses the need for impairment of attend Committee meetings. The external and equipment other non-current assets (property, plant and equipment and fnancial auditors, Ernst & Young, attend the and financial assets) as and when indicators of impairment exist. The Audit assets majority of meetings and have direct Committee considered the methodology used by management in that access to the Chairman of the Committee. process and was satisfed that it was appropriate. The Group Chairman, Chief Executive and other senior finance personnel attend meetings (or for particular agenda items) Divestments In 2013, the Group announced that it had identifed a number of at the invitation of the Committee. During – appropriate business units for divestment globally. None of these businesses met 2014, the Committee met with the Head application of the ‘held for sale’ criteria at 31 December 2013. However, the status of of Internal Audit, and separately with IFRS 5 Non-current the businesses identifed for divestment evolved during 2014 and those Assets Held for businesses which met the ‘held for sale’ criteria at 31 December 2014 the external auditors, in the absence Sale and have been reclassifed as such in the Consolidated Financial of management. A typical calendar of Discontinued meetings, which includes a general Operations Statements (see note 4 to the Consolidated Financial Statements for outline of the main agenda items, is set more details). Following detailed discussions with management and Ernst & Young, the Audit Committee was satisfed that the treatment in out in table 8 on page 64. 2014 was appropriate. In February each year, the Chairman of the Committee formally reports to the Board on how the Committee has Contract revenue IAS 11 Construction Contracts requires revenue and expenses to be recognition recognised on uncompleted contracts, with the underlying principle discharged its responsibilities in respect that, once the outcome of a long-term construction contract can be of the prior financial year. reliably estimated, revenue and expenses associated with that contract Internal Audit should be recognised by reference to the stage of completion of the The Head of Internal Audit attends the contract activity at the balance sheet date. If it is anticipated that the majority of the meetings of the Audit contract will be loss-making, the expected loss must be recognised immediately. Following discussions with management and Ernst & Committee. The Committee agrees the Young, the Audit Committee was satisfed that contract revenue Internal Audit strategy, its charter and the recognition was not a material issue for the Group in 2014 as the annual workplan, which is developed on majority of contracts were completed within the fnancial year. a risk-based approach.
CRH 63 Corporate Governance Report | continued
Typical Audit Committee Calendar Table 8 The Head of Internal Audit reports to the Audit Committee on the findings Meeting Activity Attendees by invitation of internal audit reviews and related (in addition to the Finance follow-ups and the outcome of control Director and the Head of testing in connection with Section 404 Internal Audit) of the Sarbanes-Oxley Act 2002.
February –– Consideration of the fnancial statements (including Chief Executive and In recent years, there has been a the report from the external auditors on Integrated executives responsible significant increase in the resources Audit Results and Communications) for the relevant areas allocated to IT Audit. The Committee –– Approval of external audit fee meets regularly with the senior IT Audit –– Annual review of external auditor independence Manager to discuss IT Audit strategy, –– Annual assessment of risk management and internal the key areas of focus and agrees the control systems annual IT Audit workplan. –– Approval of Internal Audit workplan Assessments of the Internal Audit –– Review of reports on the operation of the CRH Code function have been carried out of Business Conduct, the Competition/Anti-trust periodically by management and Compliance Code and the arrangements in place to validated by an independent third enable employees to raise concerns, in confdence, in party assessor. An external assessment, relation to possible wrongdoing in fnancial reporting which principally involved a series or other matters of interviews with key stakeholders –– Enterprise Risk Management Review throughout the organisation, including March –– Review of Annual Report on Form 20-F Senior finance personnel the members of the Audit Committee, was commenced in December 2014. May –– Review of interim management statement* Group Chairman and The results of that assessment will be Chief Executive presented to the Audit Committee for consideration in the first half of 2015. June –– Meeting with Finance Director, Europe Senior Europe finance –– Cyber Security Update personnel Risk management and internal controls The Board has delegated responsibility July –– Preliminary consideration of interim results Chief Executive and for monitoring the effectiveness of the –– Approval of the external audit plan executives responsible for the relevant areas Group’s risk management and internal –– Updates on accounting & auditing developments control systems to the Audit Committee. –– Update on Internal Audit work/activities Further details in relation to the –– Annual review of Committee effectiveness Committee’s work in this area are set out –– Enterprise Risk Management Review in the section on Risk Management and August –– Review of interim results announcement Group Chairman and Internal Controls on page 69. Chief Executive External Auditors September –– Meeting with the Chief Financial Offcer for the Senior Americas There are no contractual obligations Americas finance personnel which act to restrict the Committee’s –– Preliminary review of goodwill impairment and choice of external auditor. The sensitivity analysis Committee periodically considers the –– Cyber Security Update risk of withdrawal by Ernst & Young October –– Enterprise Risk Management Review Executives responsible from the market and the potential –– Preliminary review of interim management statement for the relevant areas impact on the Group, were that –– Pensions Update eventuality to materialise.
November –– Review of interim management statement* Group Chairman and The Audit Committee has put in Chief Executive place safeguards to ensure that the independence of the audit is not December –– Review of outcome of goodwill impairment and Senior finance personnel sensitivity analysis compromised. Such safeguards include: –– Update on Internal Audit work/activities ––seeking confirmation from the –– Enterprise Risk Management Review external auditors that they are, in their –– Approval of non-audit fees provided by external professional judgement, independent auditors from the Group; –– Review of the Committee’s performance and Terms of ––obtaining from the external auditors an Reference account of all relationships between * A Committee of the Group Chairman, Audit Committee Chairman, Chief Executive and Finance Director the auditors and the Group; are authorised from time to time to review and approve the release of interim management statements. ––monitoring the Group’s policy
64 CRH Corporate Governance Report | continued
and other related matters; assignments Percentage of Audit and Non-audit Fees Table 9 (see note 3 to the Consolidated Financial Statements) which typically involve relatively small fees. The Audit Committee is satisfied 2014 89% 11% that the external auditors’ knowledge of the Group was an important factor in 2013 85% 15% choosing them to provide these services. 2012 81% 19% The Committee is also satisfied that the fees paid to Ernst & Young for non-audit 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% work, which amounted to 11% of the total fee in 2014, did not compromise Audit services Non-audit related services their independence or integrity. Details of the amounts paid to the external auditors during the year for audit and prohibiting the employment of former Other than the above, the Group does other services are set out in note 3 to the staff of the external auditors, who not impose an automatic ban on the Consolidated Financial Statements on were part of the CRH audit team, in external auditors undertaking non- page 119. senior management positions with the audit work. The external auditors are Group until two years have elapsed permitted to provide non-audit services The Audit Committee’s primary means since the completion of the audit; that are not, or are not perceived to be, of assessing the effectiveness of the in conflict with auditor independence external audit process is by monitoring –– monitoring the number of former or prohibited by Rule 2-01 of SEC performance against the agreed audit employees of the external auditors Regulation S-X, provided they have plan. In addition, each year the currently employed in senior positions the skill and competence to carry out Committee considers (i) the experience in the Group and assessing whether the work and are considered by the and knowledge of the Ernst & Young those appointments impair, or appear Committee to be the most appropriate audit team; (ii) the results of post-audit to impair, the external auditors’ party to undertake such work in the best interviews with management and the judgement or independence; interests of the Group. Audit Committee Chairman; (iii) the –– considering whether, taken as a whole, transparency reports issued under EU The engagement of the external auditors the various relationships between regulations by Ernst & Young Ireland; to provide any non-audit services must the Group and the external auditors and (iv) where applicable, relevant be pre-approved by the Audit Committee impair, or appear to impair, the reports by regulatory bodies on the or entered into pursuant to pre-approval auditors’ judgement or independence; performance of Ernst & Young. These policies and procedures established by annual procedures are supplemented –– reviewing the economic importance the Committee. The pre-approval policy by periodic formal reviews of the of the Group to the external auditors specifies the services that are prohibited performance of Ernst & Young, the most and assessing whether that importance and the services which have general pre- recent of which took place in late 2014. impairs, or appears to impair, the approval. The Committee has delegated The 2014 review captured the views of external auditors’ judgement or to the Finance Director responsibility for relevant stakeholders across the Group independence. confirming whether a service, which has and members of the Committee. The The Group external audit engagement general pre-approval, can be provided preliminary results indicated a high partner is replaced every five years and by Ernst & Young. In addition, Internal level of satisfaction with Ernst & Young other senior audit staff are rotated every Audit reviews the pre-approval process and the services provided by them seven years. to ensure that it is robust in addressing to CRH. The Audit Committee will the requirements of the Public Company consider a full report on the findings The Group has a policy governing Accounting Oversight Board and and recommendations arising from the the conduct of non-audit work by the does not impinge on Ernst & Young’s review in the first half of 2015. auditors. The policy, which was updated independence. The Finance Director in 2012, is available on the CRH website. reports regularly to the Committee on Under the policy, the external auditors services which have been approved. are prohibited from performing services where they: In 2014, the external auditors provided a number of audit-related services, –– may be required to audit their own including Sarbanes-Oxley Section 404 work; attestation, and non-audit services, –– participate in activities that including due diligence services would normally be undertaken by associated with proposed acquisitions management; and disposals. Ernst & Young were also engaged during 2014 in a number –– are remunerated through a ‘success of jurisdictions in which the Group fee’ structure; and operates to provide help with local tax –– act in an advocacy role for the Group. compliance, advice on taxation laws
CRH 65 Nomination & Corporate Governance Committee
The Nomination & Corporate Governance Chairman’s overview Committee consists of four non-executive Directors. The primary responsibilities of the Committee are: Nicky Hartery Board Renewal The Nomination & Corporate Governance –– regularly reviewing the size, Chairman of Nomination & Corporate Governance regularly reviews the Board’s structure and composition (including Committee Committee skills, knowledge, experience and skill mix, experience and tenure in diversity) of the Board and making order that the renewal process is orderly recommendations to the Board and planned. A skills matrix has been regarding any changes; developed to aid this process and is used –– giving consideration to succession by the Committee. During 2014, and to planning for Directors and senior date in 2015, the Committee identified executives; and recommended to the Board that the –– identifying and recommending following individuals be appointed as candidates to fll Board vacancies; non-executive Directors: –– in respect of the appointment of a –– Pat Kennedy, appointed with effect chairman, preparing a job specifcation from 1 January 2015; and including the time commitment expected; –– Lucinda Riches, appointed with effect from 1 March 2015. –– keeping under review the leadership needs of the organisation; The search criteria for these appointments –– approving the terms of reference for included candidates with a Chief external board evaluations; Executive or senior management –– keeping under review corporate background who had general industry, governance developments with the emerging markets and, in the context of aim of ensuring that CRH’s governance recent and impending Board retirements, policies and practices continue to be in finance, investment banking or private line with best practice; equity experience. –– ensuring that the principles and Biographies for Pat Kennedy and Lucinda provisions set out in the 2012 Code Riches are included on pages 52 and 53. (and any other governance code that applies to the Company) are observed; The Committee worked with Korn/Ferry in relation to the appointment of Lucinda. –– reviewing the disclosures and Korn/Ferry has no other connection with statements made in the Corporate the Company. We did not use the services Governance Report to shareholders. of a recruitment agency in relation to The responsibilities of the Nomination & the appointment of Pat; he had been Corporate Governance Committee are identified as a candidate for a non- set out in full in its Terms of Reference, which are available on the CRH executive Director a number of years ago. website, www.crh.com. At that time he was Executive Chairman of SHV Holdings, a large family owned multi-national based in the Netherlands. We remained in contact with him and when he retired from his executive role at SHV he met with all of the current members of the Nomination & Corporate Governance Committee and a number of other Board members. He brings to CRH wide experience in a range of industries, emerging markets and the provision of private equity. Lucinda has significant experience in equity and capital markets both in London and New York. While she worked for the majority of her career up to 2007 in UBS, the Company’s broker, the Committee is satisfied that no issues of independence arise.
66 CRH Nomination & Corporate Governance Committee
Chairman’s overview
Ernst Bärtschi was appointed to the Meeting. Don also succeeds Dan as Board in 2011 and Heather Ann Senior Independent Director. A summary McSharry was appointed in 2012. They of recent and upcoming changes to the completed their first three year terms as Board’s Committees are set out in non-executive Directors in November table 10. 2014 and February 2015 respectively. Voting at General Meetings Following a performance review, on The Committee reviewed the voting the recommendation of the Committee, outcome at the 2014 Annual General the Board has asked Ernst and Heather Meeting and concluded that there was Ann to each continue on the Board for a no issue or pattern in voting which was further three year term. unexplained or warranted discussion Following the appointment of Lucinda with individual shareholders. Riches, female Directors will represent 25% of the Board after the conclusion of the 2015 Annual General Meeting. The Nicky Hartery Nomination & Corporate Governance Nomination & Corporate Governance Committee will continue to retain gender Committee Chairman diversity as a key factor to consider in all February 2015 Board appointments for the foreseeable future. Board Committees / Senior Independent Director On the recommendation of the Nomination & Corporate Governance Committee, the Board has appointed Don McGovern as Chairman of the Remuneration Committee, with effect from March 2015. Don succeeds Dan O’Connor, who will remain on the Committee until his retirement at the conclusion of the 2015 Annual General
Summary of Board Committee Changes Table 10
Acquisitions Audit Finance Nomination Remuneration
Ernst Bärtschi - M (Ch) - -
John Kennedy -
Pat Kennedy - - -
Albert Manifold M - - -
Don McGovern - - (Ch)
Heather Ann McSharry - M - -
Dan O’Connor - - M M (prev. Ch)
Henk Rottinghuis M - - -
Lucinda Riches* - - -
= Appointed to committee; = ceased to be a committee member; (Ch) = committee Chairman; - = not applicable or no change; M = continuing member * Committee appointment will take effect from 1 March 2015 CRH 67 Corporate Governance Report | continued
Nomination & Corporate Governance Under its Terms of Reference, the Remuneration The Committee reviewed its Terms of Reference Committee Members Committee must be made up of at least three in December 2014 and determined that no The biographies of the members of the members, all of whom must be independent changes were required. The Terms of Reference, Nomination & Corporate Governance non-executive Directors. Members of the which were last updated in December 2013, are Committee are set out on pages 51 to 53. Committee can serve for up to a maximum of available on the CRH website. three terms of three years. The Group Chairman The tenure of each Committee member is as Acquisitions Committee may be a member of the Committee provided follows: he was independent on appointment as Acquisitions Committee Members Chairman and the Board continues to consider The biographies of the members of the W. P. Egan 7.5 years him to be independent. Only members of the Acquisitions Committee are set out on pages 51 Committee have the right to attend Committee to 53. N. Hartery 10.5 years meetings. However, other individuals such The tenure of each Committee member is D. McGovern 0.25 years as the Chairman, if not a member of the as follows: D. O’Connor 2.5 years Committee, the Chief Executive, the Group Human Resources and Talent Development Director and external advisers may be invited N. Hartery 2.5 years Ms. L. Riches will join the Nomination & to attend for all or part of any meeting as and M. Carton 4.5 years Corporate Governance Committee with effect when appropriate. The Chief Executive is fully from her appointment to the Board on 1 March consulted about remuneration proposals. U-H. Felcht 3.0 years 2015. Remuneration Committee Members J.W. Kennedy 0.5 years The factors taken into account by the The biographies of the members of the A. Manifold 6.0 years Nomination & Corporate Governance Remuneration Committee are set out on pages Committee in considering the composition of 51 to 53. the Board are set out in the policy for Board Mr. P. Kennedy and Mr. H. Rottinghuis were renewal which is detailed on page 57. The tenure of each Committee member is as follows: appointed to the Committee on 25 February The Committee reviewed its Terms of Reference 2015. in December 2014 and determined that no The attendance at Acquisitions Committee changes were required. The Terms of Reference, W. P. Egan 7.5 years meetings is set out in table 11. which were last updated in December 2013, are N. Hartery 10.5 years available on the CRH website. Role and Responsibilities D. McGovern 0.25 years The Acquisitions Committee has been delegated Remuneration Committee D. O’Connor 2.5 years authority by the Board to approve acquisitions The Directors’ Remuneration Report on and disposals and large capital expenditure pages 72 to 95 contains an overview of projects up to agreed limits. the responsibilities and activities of the Ms. L. Riches will join the Remuneration Remuneration Committee during 2014. Committee with effect from her appointment to the Board on 1 March 2015.
Attendance at Board and Board Committee meetings during the year ended 31 December 2014 Table 11
Board Acquisitions Audit Finance Nomination Remuneration No. of Meetings No. of Meetings No. of Meetings No. of Meetings No. of Meetings No. of Meetings Total Attended Total Attended Total Attended Total Attended Total Attended Total Attended
E.J. Bärtschi 8 8 10 10 M. Carton 8 8 8 8 7 7 W.P. Egan 8 7 7 7 8 8 U-H. Felcht 8 7 8 8 7 7 N. Hartery 8 8 8 8 7 7 7 7 8 8 J.M. de Jong* 2 2 1 1 2 2 J.W. Kennedy 8 8 2 2 5 5 7 7 D.A. McGovern, Jr. 8 8 10 10 H.A. McSharry 8 8 10 10 A. Manifold 8 8 8 8 7 7 D.N. O’Connor 8 8 5 5 7 7 8 8 H. Th. Rottinghuis** 8 8 5 4 M.S. Towe 8 8
* Retired May 2014 ** Appointed to Board February 2014 Note: See summary of Board Committee changes in table 10 on page 67.
68 CRH Corporate Governance Report | continued
Finance Committee An appropriate control framework has been put management and internal control systems in place around the recording of appropriate up to and including the date of approval of Finance Committee Members eliminating journals and other adjustments. the financial statements. This had regard to The biographies of the members of the Finance The Consolidated Financial Statements are all material controls, including financial, Committee are set out on pages 51 to 53. reviewed by the CRH Financial Reporting and operational and compliance controls that could The tenure of each Committee member is Disclosure Group prior to being reviewed by affect the Group’s business. as follows: the Audit Committee and approved by the Compliance & Ethics Board of Directors. The Group Compliance & Ethics (C&E) The Directors confirm that the Group’s N. Hartery 2.5 years programme continues to develop in scope and ongoing process for identifying, evaluating and M. Carton 4.5 years reach. The structure of the C&E organisation managing its principal risks and uncertainties was realigned in 2014 to serve the new CRH U-H. Felcht 7.5 years (as outlined in the Directors’ Report on pages Europe organisation. A CRH Europe Head 96 to 98) is in accordance with the updated J.W. Kennedy 0.5 years of C&E was appointed from the existing Turnbull guidance (Internal Control: Revised Compliance pool. Business Unit Compliance Guidance for Directors on the Combined Code) Coordinators (BUCCs) were also appointed published in October 2005. The process has Mr. E. J. Bärtschi and Ms. H. A. McSharry were for Heavyside East, Heavyside West, Lightside been in place throughout the accounting period appointed to the Committee on 25 February and Distribution and a European Compliance and up to the date of approval of the Annual 2015. Officer was appointed to assist the European Report and financial statements. Head of C&E. The attendance at Finance Committee meetings Group management has responsibility for is set out in table 11. CRH’s Code of Business Conduct (COBC) and major strategic development and financing related policies were updated and approved by Role and Responsibilities decisions. Responsibility for operational issues the Board and the C&E team’s primary focus The Finance Committee is responsible for: is devolved, subject to limits of authority, since then has been to ensure all relevant to product group and operating company –– advising the Board on the financial employees receive appropriate training. In the management. Management at all levels is requirements of the Group and on current training cycle over 32,000 employees responsible for internal control over the appropriate funding arrangements; have participated in COBC training and a business functions that have been delegated. further 11,000 have also undertaken advanced –– considering and making recommendations This embedding of the system of internal instruction on competition law and anti- to the Board in relation to the issue and buy- control throughout the Group’s operations bribery, corruption and fraud. back of shares and debt instruments and on ensures that the organisation is capable of the Group’s financing arrangements; responding quickly to evolving business risks, In addition, our development teams and and that significant internal control issues, procurement teams have received appropriate –– considering and making recommendations should they arise, are reported promptly to instruction on both our C&E Mergers, to the Board in relation to dividend levels on appropriate levels of management. Acquisitions and Joint Venture Due Diligence the Ordinary Shares; Programme and our Ethical Procurement Code. During the year, the Board and Audit –– keeping the Board advised of the financial Our Supplier Code of Conduct was developed Committee received, on a regular basis, reports implications of Board decisions in relation to to communicate our minimum Corporate Social from management on the key risks to the acquisitions; Responsibility requirements to existing and business and the steps being taken to manage new suppliers to the Group and to outline how –– assisting management, at their request, in such risks. They also considered whether we ensure compliance with these requirements. considering any financial or taxation aspect the significant risks faced by the Group were Similar procedures have been developed for of the Group’s affairs; and being identified, evaluated and appropriately any engagements with business partners. managed, having regard to the balance of –– reviewing the Group’s insurance Further guidelines developed during the year risk, cost and opportunity. In addition, the arrangements. include a Competition Law Toolbox – which Audit Committee met with internal auditors gathers into one place various CRH guidelines, Risk Management and Internal Control on a regular basis and satisfied itself as to policies and notes to help the businesses the adequacy of the Group’s internal control The Board has delegated responsibility for the comply with Competition Law requirements. system; met with the Chairman of the monitoring of the effectiveness of the Group’s Remuneration Committee to ensure that the The following existing policies are under risk management and internal control systems Group’s remuneration policies and structures review; to the Audit Committee*. Such systems are were appropriate and in line with the Group’s designed to manage rather than eliminate the • The Competition/Antitrust Compliance Code risk tolerance; and reviewed the principal risks risk of failure to achieve business objectives • The Donations Policy and uncertainties outlined in the Directors’ and, in the case of internal control systems, • The Anti-Fraud Policy Report. The Audit Committee also met with, can provide only reasonable and not absolute and received reports from, the external auditors. The COBC has scored an “A” rating by New assurance against material misstatement The Chairman of the Audit Committee reported York Stock Exchange Governance Services or loss. regularly to the Board on all significant issues and incorporates some welcome new features, The Consolidated Financial Statements are considered by the Committee and the minutes including learning aids, an ethical-decision prepared subject to oversight and control of of its meetings were circulated to all Directors. making guide and a clear focus on the core the Finance Director, ensuring correct data values of the Group: Integrity, Honesty and The Directors confirm that, in addition to the is captured from Group locations and all Respect for the law. It was translated and monitoring carried out by the Audit Committee required information for disclosure in the distributed during 2014 and related training under its Terms of Reference, they have Consolidated Financial Statements is provided. is being migrated to an on-line module. A reviewed the effectiveness of the Group’s risk robust communication plan is in place to
* In accordance with Regulation 91(6)(b) of the European Communities (Statutory Audits) (Directive 2006/43) Regulations 2010.
CRH 69 Corporate Governance Report | continued
Substantial Holdings Table 12
As at 31 December 2014, the Company had received notification of the following interests in its Ordinary share capital:
Name 31 December 2014 31 December 2013 31 December 2012
Holding/Voting % at year Holding/Voting % at year Holding/Voting % at year Rights end Rights end Rights end
BlackRock, Inc.* 40,681,647 5.49% 43,857,751 5.98% 28,961,677 3.98%
The Capital Group Companies, Inc. - - - - 35,763,581 4.92%
Harbor International Fund 21,999,275 2.96% 21,999,275 3.00% 21,999,275 3.02%
Legal & General Group Plc - - - - 22,496,003 3.09%
Norges Bank (The Central Bank of Norway) - - - - 21,543,277 2.96%
Templeton Global Advisors Limited 21,503,171 2.90% 21,503,171 2.93% 21,503,171 2.96%
UBS AG 26,380,604 3.56% 26,380,604 3.59% 26,380,604 3.63%
* BlackRock, Inc. has advised that its interests in CRH shares arise by reason of discretionary investment management arrangements entered into by it or its subsidiaries. complement the training programme. A Substantial Holdings importance of effective dialogue as an integral multi-lingual “hotline” facility – “Speak Up” element of good corporate governance. The Company is not owned or controlled is also available to employees as a secure The Investor Relations team, together with directly or indirectly by any government or channel to report ethical issues that concern the Chief Executive, Finance Director and by any corporation or by any other natural or them or suspected violations of our Codes. other senior executives, meet regularly legal person severally or jointly. The major All hotline reports received are fully reviewed with institutional shareholders (each year shareholders do not have any special voting and investigated by appropriately qualified covering over 50% of shareholder base). rights. Details of the substantial holdings personnel. Detailed reports on the issues covered in those as at 31 December 2014 are provided in meetings and the views of shareholders are The C&E programme has been integrated table 12. Between 31 December 2014 and 25 circulated to the Board after each group of into our standard Internal Audit procedures February 2015, the Company has been advised meetings. Table 13 provides a brief outline of and forms part of an annual management that Harbor International Fund decreased the nature of the activities undertaken by our certification process. Its effectiveness is also its holding to 21,853,816 (2.9502%) and Investor Relations team. regularly reviewed by the C&E function BlackRock, Inc. has increased its holding to with appropriate oversight from senior 67,412,664 (8.27%). During 2014, the Chairman, Senior management and the Audit Committee. The Independent Director and Company Secretary Communications with Shareholders collective goal is to ensure the message is participated in a number of conference calls clearly understood that at CRH “there is never Communications with shareholders are with some of the Group’s major shareholders a good business reason to do the wrong thing”. given high priority and the Group devotes in advance of the 2014 Annual General considerable time and resources each year to Meeting. The meetings were organised Sustainability and Corporate Social shareholder engagement. We recognise the to provide those shareholders with an Responsibility opportunity to discuss the resolutions Sustainability and Corporate Social Responsibility (CSR) concepts are embedded Investor Relations Activities Table 13 in all CRH operations and activities. Excellence in the areas of health & safety, Formal Announcements, including the release of the annual and interim results and the environment & climate change, governance issuance of interim management statements. These announcements are typically accompanied and people & community is a daily priority of by presentations and webcasts or conference calls. line management. The Group’s policies and Investor Roadshows, typically held following the release of formal announcements, provide implementation systems are summarised on an opportunity for the management team to meet existing and/or potential investors in a pages 17 to 21 and are described in detail in concentrated set of meetings. the annual Sustainability Report, which is typically published mid-year in respect of the Industry Conferences: Attendance at key sector and investor conferences affords members of previous calendar year, and is available on the senior management team the opportunity to engage with key investors and analysts. the Group’s website. During 2014, CRH was Investor Briefings: In addition to regular contact with investors and analysts during the year, the again recognised by several leading socially Company periodically holds capital market days, which include presentations on various aspects responsible investment (SRI) agencies as of CRH’s operations and strategy and provide an opportunity for investors and analysts to meet being among the leaders in its sector in these with CRH’s wider management team. important areas. Media Briefings: Each year, the Company provides media briefngs on numerous issues.
70 CRH Corporate Governance Report | continued
on the 2014 Annual General Meeting agenda holding at least 5% of the issued share capital other person of 1,000 Ordinary Shares in the and corporate governance matters generally. of the Company, has the right to requisition capital of the Company. A Director may act a general meeting. A shareholder, or a group before acquiring his/her qualification but must In addition to the above, major acquisitions are of shareholders, holding at least 3% of the acquire the shares within two months of his/ notified to the Stock Exchanges in accordance issued share capital of the Company, has the her appointment or election. with the requirements of the Listing Rules and right to put an item on the agenda of an AGM development updates, giving details of other Going Concern or to table a draft resolution for inclusion in acquisitions completed and major capital the agenda of a general meeting, subject to any The Company’s business activities, together expenditure projects, are issued periodically contrary provision in Irish company law. with the factors likely to affect its future (typically in January and July each year). development, performance and position are set Memorandum and Articles of Association In addition, we respond throughout the year to out in the Strategy Review section and in the correspondence from shareholders on a wide The Company’s Memorandum of Association Directors’ Report on pages 8 to 15 and pages 96 range of issues. sets out the objects and powers of the to 98. The financial position of the Company, Company. The Articles of Association detail its cash flows, liquidity position and borrowing The Chief Executive made a presentation the rights attaching to each share class; the facilities are described in the Business to shareholders at the 2014 Annual General method by which the Company’s shares can Performance Review on pages 22 to 49. In Meeting on CRH’s businesses. be purchased or re-issued and the provisions addition, notes 20 to 24 to the Consolidated General Meetings which apply to the holding of and voting at Financial Statements include the Company’s general meetings. Details of transactions in the objectives, policies and processes for managing The Company’s Annual General Meeting Company’s own shares are included on pages its capital; its financial risk management (AGM), which is held in Ireland, affords 99 and 100 of the Directors’ Report. objectives; details of its financial instruments individual shareholders the opportunity to and hedging activities; and its exposures to question the Chairman and the Board. All The Articles of Association also set out the credit, currency and liquidity risks. Directors attended the 2014 AGM. The Notice rules relating to Directors, including their of the AGM, which specifies the time, date, appointment, retirement, re-election, duties The Company has considerable financial place and the business to be transacted, is sent and powers. The Articles provide that no resources and a large number of customers to shareholders at least 20 working days before person other than a Director retiring at the and suppliers across different geographic areas the meeting. At the meeting, resolutions are meeting shall, unless recommended by the and industries. In addition, the local nature voted on by way of a poll using an electronic Directors, be eligible for election to the office of building materials means that the Group’s voting system. The votes of shareholders of Director at any General Meeting unless products are not usually shipped cross-border. present at the meeting are added to the proxy not less than seven nor more than 21 days Having assessed the relevant business risks, votes received in advance and the total number before the day appointed for the meeting there the Directors believe that the Company is well of votes for, against and withheld for each shall have been left at the registered office placed to manage these risks successfully, resolution are announced. This information notice in writing, signed by a member duly and they have a reasonable expectation that is made available on the Company’s website qualified to attend and vote at the meeting for the Company, and the Group as a whole, have following the meeting. which such notice is given, of his intention adequate resources to continue in operational to propose such person for election and also All other general meetings are called existence for the foreseeable future. For this notice in writing signed by that person of his Extraordinary General Meetings (EGMs). reason, they continue to adopt the going willingness to be elected. The Articles also An EGM called for the passing of a special concern basis in preparing the Consolidated require that the qualification of a Director shall resolution requires at least 21 clear days’ Financial Statements. be the holding alone and not jointly with any notice. A quorum for a general meeting of the The following are available on the CRH website, www.crh.com: Table 14 Company is constituted by five or more shareholders present in person and entitled to Corporate Governance section: vote. The passing of resolutions at a meeting of –– Terms of Reference of Acquisitions Committee (amended December 2010) the Company, other than special resolutions, –– Terms of Reference of Audit Committee (amended December 2013) requires a simple majority. To be passed, a special resolution requires a majority of at least –– Terms of Reference of Finance Committee (amended February 2004) 75% of the votes cast. –– Terms of Reference of Nomination & Corporate Governance Committee (amended December 2013) Shareholders have the right to attend, speak, –– Terms of Reference of Remuneration Committee (amended December 2013) ask questions and vote at general meetings. –– The Memorandum and Articles of Association of the Company In accordance with Irish company law, the –– Pre-approval policy for non-audit services provided by the auditors Company specifies record dates for general meetings, by which date shareholders must –– Compliance & Ethics statement, Code of Business Conduct and Hotline contact numbers be registered in the Register of Members of –– The 2014 Remuneration Policy the Company to be entitled to attend. Record Investors section: dates are specified in the notes to the notice of a general meeting. Shareholders may exercise –– Annual and Interim Reports, the Annual Report on Form 20-F, the Sustainability Report, Interim their right to vote by appointing, by electronic Management Statements and copies of presentations to analysts and investors means or in writing, a proxy/proxies to vote –– News releases some or all of their shares. The requirements –– Webcast recordings of key investor briefngs for the receipt of valid proxy forms are set –– General Meeting dates, notices, shareholder circulars, presentations and poll results out in the notes to the notice convening the –– Answers to Frequently Asked Questions, including questions regarding dividends and meeting and in the notes on the proxy form. shareholder rights in respect of general meetings A shareholder, or a group of shareholders,
CRH 71 Directors’ Remuneration Report
Contents Salary Level Increases 2009 - 2015 Table 15
Page 10% 8%
6% 72 Summary of role of Committee 73 Recent remuneration snapshot 4% 73 Committee Chairman Introduction 2% 75 Annual Statement on Remuneration* 0% 90 Remuneration Policy Summary** Albert Manifold see note (i) Maeve Carton see note (ii) Mark Towe 2010/09 2011/10 2012/11 2013/12 2014/13 2015/14 * Tables 19, 34, 35, 36, 37, 38, 39, 40, (i) Salary increased from €825,000 to €1,200,000 when appointed as Chief Executive with effect from 1 January 2014. 42, 43 and 50 have been audited (ii) Appointed to the Board in May 2010; 2014 and 2015 salary increased following review of market levels, breadth of responsibilities and performance in 2013. ** The full policy, which was approved by See page 62 of the 2013 Annual Report for further information. shareholders at the 2014 AGM and which will remain in force until May 2017, unless previously amended by Annual Bonus Levels as a Percentage of Salary 2009 - 2014 Table 16 shareholders is available on the CRH 150% website, www.crh.com 130% The Remuneration Committee consists of four 110% non-executive Directors considered by the 90% Board to be independent. They bring a range of 70% experience of large organisations and public companies, including experience in the area of 50% senior executive remuneration, to enable the 30% Committee to fulfl its role. Their biographical 10% details are set out on pages 51 to 53. Albert Manifold Maeve Carton* Mark Towe
The main focus of the Committee is to: 2009 2010 2011 2012 2013 2014 –– determine and agree with the Board the Bonus Payouts in period 2009 to 2014 ranged from: 25% - 150% * Appointed in May 2010 Group’s policy on executive remuneration; –– seek shareholder approval for the policy at least every three years; Historic Vesting of 2006 Performance Share Plan Awards Table 17 –– ensure that CRH’s remuneration structures are fair and responsible; and 2006 award; vested/lapsed in 2009 –– consider and approve remuneration 2007 award; vested/lapsed in 2010 packages for the executive Directors and 2008 award; vested/lapsed in 2011
the Chairman. 2009 award; vested/lapsed in 2012
In addition, the Committee: 2010 award; vested/lapsed in 2013
–– recommends and monitors the level 2011 award; vested/lapsed in 2014 and structure of remuneration for senior 2012 award; vested/lapsed in 2015 management; and Average vested/lapsed –– oversees the preparation of this Directors’ Remuneration Report. 0% 20% 40% 60% 80% 100% Vested Lapsed In considering remuneration levels for executive Directors particularly, the Committee takes into account remuneration trends across the CRH Group, which has a diverse range of operations AGM Votes on Report on Directors’ Remuneration Table 18 in 34 countries, in geographic regions which are Voting Results 2010-2014 often at different stages in the economic cycle. 2010 Additional details in relation to the Committee, its role and responsibilities and how it operates 2011 are included in the Remuneration Committee Remuneration 2012 section of the Corporate Governance report on Report page 68. 2013 The Chief Executive attends meetings except 2014 when his own remuneration is being discussed. Policy 2014 - 2017 2014
0% 20% 40% 60% 80% 100%
For Against
72 CRH Introduction
evolving best practice, we have Dan O’Connor Recent Remuneration Snapshot: increased the level of disclosure in Chairman of relation to payout levels to provide Remuneration Committee • Updated Remuneration Policy shareholders with a greater level of approved at 2014 AGM insight into the approach for • New performance share plan determining bonus payments. We have adopted at 2014 AGM also disclosed the targets for the bonus payments in respect of 2013 as these are • Incentive payout levels linked to no longer considered to be commercially stretching performance criteria sensitive. Similarly, the Remuneration • Strong support from shareholders Committee intends that the targets for for policy and implementation the 2014 bonus plan will be disclosed in the 2015 Directors’ Remuneration Report. The 2014 Remuneration Policy also On behalf of the Remuneration In addition, there was significant made provision for the Remuneration Committee, I am pleased to introduce achievement regarding the Group’s Committee to introduce clawback the Directors’ Remuneration Report for multi-year divestment programme of provisions, in addition to the malus** the year ended 31 December 2014. The €1.5 billion to €2.0 billion, with provisions already in place for the Remuneration Report (excluding the proceeds from completed disposals of annual bonus plan and the long-term Remuneration Policy summary on €0.35 billion since the programme was performance share plan. The Committee pages 90 to 95), will be included on the announced in August 2014. has decided, in accordance with the provisions of the 2014 UK Corporate agenda of the 2015 Annual General Overall, CRH’s strong balance sheet and Meeting for shareholder consideration. Governance Code, to introduce clawback cash generation capability leave the provisions for the cash element of the The purpose of CRH’s Remuneration Company well positioned to take annual bonus plan for 2015 and Policy, which was approved by advantage of value-creating acquisition onwards. shareholders at the 2014 Annual General opportunities. The long-term awards made under the Meeting, is to provide an appropriate In the context of the Group’s framework to support the creation of 2006 Performance Share Plan and the performance in 2014, and performance 2010 Share Option Scheme made in value for shareholders over the longer against individual and strategic goals, 2012 (each with a three year term, the attraction and retention of key the Remuneration Committee has performance period 2012 - 2014) did not executives and succession planning, determined that the annual bonus levels meet the relevant performance criteria without paying more than is necessary. for 2014 should be set at the maximum required to vest and, consequently, those The full Remuneration Policy is level of 150% for each of the executive awards lapse in full. Further details are available on the CRH website, Directors. set out on pages 78 and 79. www.crh.com. In accordance with CRH’s Remuneration Executive Director Salaries 2014 Performance Policy, approved by shareholders at the 2014 Annual General Meeting, 25% of As reported in the 2013 Directors’ 2014 was a year of growth and progress the 2014 bonus will be deferred into Remuneration Report, following in terms of our aim of restoring margins shares for a period of three years. consideration of the scope of the and returns to peak levels in the Finance Director’s responsibilities and coming years. The basis for each bonus award is set out in detail on page 76. In line with her performance since being appointed in 2010, the Committee decided that Sales + 5% Return on Net Assets +150bps Maeve Carton’s salary should be increased, subject to continued EBITDA +11% Operating Cash Flow +23% individual and business performance, EPS +33%* Net Debt -16% to €675,000 in two steps. Her salary * Based on adjusted 2013 EPS (excluding impairments and the related tax impact). ** Malus is a mechanism whereby the Remuneration Committee may decide not to release deferred share or performance share plan awards if an unusual event such as a material financial misstatement occurred, significant losses were incurred or the Company suffered significant reputational damage.
CRH 73 Directors’ Remuneration Report | continued
increased to €625,000 (+9.7%) in 2014. during the course of 2015 to ensure it The Remuneration Committee has remains appropriate for the needs of the determined that it is appropriate to make business. the second increase (to €675,000) in respect of 2015 (+8%). Conclusion The Committee has also reviewed the Shareholders play a crucial role in the salary levels for Albert Manifold and design of appropriate, balanced and fair Mark Towe and determined that remuneration structures and, as I will increases of 7.5% to €1,290,000 and 3% retire from the Board of CRH following to US$1,420,000 respectively are the 2015 Annual General Meeting, I appropriate. The increase for Albert would like to thank all those who have Manifold refects the speed with which engaged with CRH during my tenure as he has developed in the Chief Executive Remuneration Committee Chairman, for role, demonstrated by the progress in the their constructive approach to dialogue delivery of strategy and the improvement with the Company. I have no doubt that in returns and margins referred to above. my successor, Don McGovern, will The Remuneration Committee also noted benefit from your continued strong support that the salary of Albert Manifold for CRH. remains below the level of €1,450,000 awarded to the Chief Executive of CRH Dan O’Connor in 2008. The increase for Mark Towe is Remuneration Committee Chairman in line with increases across the general employee population in the United February 2015 States. 2015 Awards under the 2014 Performance Share Plan Awards under the 2014 Performance Share Plan in 2015 will be made at the same level as in 2014 and will continue to be based on TSR and adjusted cash fow. The adjusted cash fow targets have not yet been set by the Remuneration Committee and will be set when the outcome of the proposed acquisition of assets from Lafarge S.A. and Holcim Limited is known. As in previous years, the targets will be demanding and aligned to value creation for shareholders, with significant stretch ensuring that only exceptional performance will result in maximum payout.
Remuneration Policy As referred to in the Chairman’s introduction to the Annual Report on page 2, CRH has entered into a binding commitment to acquire certain assets from Lafarge S.A. and Holcim Limited for a total enterprise value of €6.5 billion. In the context of this proposed acquisition, the Committee will review the remuneration policy
74 CRH Directors’ Remuneration Report | continued
Annual Statement on Remuneration to shareholders for the purposes of an Executive Directors advisory vote at the Annual General The following section sets out details of: Remuneration received by executive Meeting to be held on 7 May 2015. Directors in respect of 2014 –– the remuneration paid to Directors in The Company is not seeking shareholder Details of individual remuneration for respect of 2014; approval for a revised Remuneration executive Directors for the year ended 31 –– how CRH’s remuneration policy will Policy this year and, therefore, we have December 2014, including explanatory operate for 2015; and not included the full policy in this notes, are given in table 19. Details of report. We have, however, included the –– other areas of disclosure. Directors’ remuneration charged against executive Director and non-executive profit in the year are given in table 50 on The Directors’ Remuneration Report, Director policy tables, as well as details page 89 in the Other Disclosures section. excluding the Remuneration Policy of the Chief Executive’s service contract summary on pages 90 to 95, will be put as information for shareholders.
Individual remuneration for the year ended 31 December 2014 (Audited) Table 19
Annual Bonus Plan Long- Retirement Basic Salary Cash Deferred Term Benefits and Fees Benefits Element Shares Incentives Expense Total Total (a) (b) (c) (c) (d) (e) € 000 € 000 € 000 € 000 € 000 € 000 € 000 € 000 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Executive Directors
Maeve Carton 625 570 16 13 703 203 234 - - 439 260 187 1,838 1,412 Albert Manifold 1,200 825 39 31 1,350 294 450 - - 648 559 290 3,598 2,088 Mark Towe 1,036 1,016 59 59 1,166 915 389 54 - 718 207 203 2,857 2,965 2,861 2,411 114 103 3,219 1,412 1,073 54 - 1,805 1,026 680 8,293 6,465
(a) Basic Salary and Fees: The background to the increase in Maeve Carton’s salary in 2014 is set out on pages 73 and 74. When he assumed the role of Chief Executive in January 2014, Albert Manifold’s salary was set at broadly the same level as the outgoing Chief Executive. Mark Towe’s salary increased in US$ terms by 2% in line with general trends in CRH operations in the United States. (b) Benefits: For executive Directors these relate principally to the use of company cars, medical insurance and life assurance and, where relevant, the value of the discount on the grant of options under the Group’s 2010 Savings-related Share Option Scheme (see table 39 on page 83) for more details) and the reimbursement of legal fees in relation to the putting in place of service contracts (see page 93 for more details). (c) Annual Bonus Plan: Under the executive Directors’ Annual Bonus Plan for 2014, a bonus is payable for meeting clearly defined and stretch targets and strategic goals. The structure of the 2014 plan, together with details of the performance against targets and payouts in respect of 2014, is set out on pages 76 to 78. (d) Long-Term Incentives: In February 2015, the Remuneration Committee determined that the award made in 2012 under the 2006 Performance Share Plan would lapse as, over the three-year period 2012-2014, CRH’s TSR performance was below the median of both the peer group and the Eurofirst 300 Index. The share options granted in 2012 under the 2010 Share Option Scheme will also lapse in full as the option failed to meet the necessary EPS performance targets. As a result, no long-term incentive award with a performance period ending in 2014 has vested or will vest. Amounts in the Long-Term Incentive column for 2013 reflect the value of vested long-term incentive awards with a three-year performance period ending in 2013. These amounts have been updated to reflect the market value of the shares on the date of vesting, which for Irish based executives was €21.28 and for the US based executive was €21.505. In the 2013 Directors’ Remuneration Report the value of the award was estimated based on the three month average share price to 31 December 2013 (see page 66 of the 2013 Directors’ Remuneration Report for more details). The structure of the 2006 Performance Share Plan is set out in tables 31 and 32 on page 80. The performance criteria for the 2010 Share Option Scheme are set out in table 33 on page 80. (e) Retirement Benefits Expense: The Irish Finance Act 2006 effectively established a cap on pension provision by introducing a penalty tax charge on pension assets in excess of the higher of €5 million or the value of individual prospective pension entitlements as at 7 December 2005. This cap was further reduced by the Irish Finance Act 2011 to €2.3 million and, by the Finance (No. 2) Act 2013, to €2 million. As a result of these legislative changes, the Remuneration Committee decided that executive Directors who are members of Irish pension schemes should have the option of continuing to accrue pension benefits as previously, or of choosing an alternative arrangement - by accepting pension benefits limited by the cap - with a similar overall cost to the Group. Maeve Carton and Albert Manifold chose to opt for the alternative arrangement which involved capping their pensions in line with the provisions of the Finance Acts and receiving a supplementary taxable non-pensionable cash allowance, in lieu of prospective pension benefits foregone. These allowances are similar in value to the reduction in the Company’s liability represented by the pension benefit foregone. They are calculated based on actuarial advice as the equivalent of the reduction in the Company’s liability to each individual and spread over the term to retirement as annual compensation allowances. For 2014 the compensation allowances amount to €259,950 (2013: €187,141) for Maeve Carton and €559,150 (2013: €290,190) for Albert Manifold.
CRH 75 Directors’ Remuneration Report | continued
personal/strategic goals. Due to 2015 Salaries - Executive Directors Table 20 commercial sensitivity, specific targets Director 2014 2015 % Change were not disclosed in the 2013 Directors’ Remuneration Report. The Remuneration Albert Manifold €1,200,000 €1,290.000 +7.5% (Chief Executive) Committee considers that Group-related targets for 2013 have ceased to be Maeve Carton €625,000 €675,000 +8% commercially sensitive and, accordingly, (Finance Director) these are set out in table 25. Indicative Mark Towe performance against Oldcastle targets for US$1,377,000 US$1,420,000 +3% (Chief Executive, Oldcastle, Inc.) 2013 is shown in table 26; the actual targets have not been disclosed as it is considered that the information remains Basic Salary and Benefits assets, with a corresponding reduction commercially sensitive. Please see table in the percentage of the plan based on Details of executive Directors’ salaries 11 in the 2013 Directors’ Remuneration earnings per share to ensure that there is for 2015 compared with 2014 are set out Report for performance in 2013 against sufficient focus on delivering sustainable in table 20. personal/strategic measures. growth. Indicative performance for each The background to the increases in measure is given in tables 23 and 24. The 2015 Annual Bonus Plan will be respect of 2015 are set out in the Specific targets for the 2014 Annual operated broadly in line with the 2014 Remuneration Committee Chairman’s Bonus Plan have not been disclosed in Annual Bonus Plan. However, in line introduction on pages 73 and 74. this report as they are considered by the with the requirements of the 2014 UK Salary level increases for executive Board to be commercially sensitive. Corporate Governance Code, the Directors since 2009 are shown in table However, it is intended that Group- Remuneration Committee has decided 15 on page 72. related targets for 2014 will be disclosed that, in addition to the malus provisions in the 2015 Directors’ Remuneration already in place, clawback provisions for Details in relation to employment- Report. the cash element of the Annual Bonus related benefits are set out in note (b) in Plan will apply for 2015 onwards (see Overall, strong performance against the table 19. page 80 for more details). 2014 Annual Bonus Plan metrics Annual Bonus Plan resulted in bonus payments of 150% of Share Scheme Awards salary for Albert Manifold, Maeve Carton A summary of the structure of CRH’s A summary of share scheme awards and Mark Towe. In accordance with the Annual Bonus Plan is set out in table 21. made to executive Directors in 2014 is Group’s remuneration policy, 25% of the 2014 Annual Bonus Outcomes set out in table 28. Details of outstanding bonus amount will be deferred into CRH’s Annual Bonus Plan for 2014 was performance share awards and share shares for a period of three years. based on a combination of financial options held by executive Directors are Deferred Shares are not subject to any targets and personal/strategic goals. The shown in tables 37, 38 and 39. additional performance conditions specific weightings for each executive during the deferral period. In addition to the awards set out in table Director are shown in table 22. In terms 28, Maeve Carton was granted an option of the relative weighting of the Similar to 2014, CRH’s Annual Bonus under the Group’s 2010 Savings-related components of the plan, the Committee Plan for 2013 was based on a Share Option Scheme. Further details in has increased the focus on returns on net combination of financial targets and relation to that award are set out in table 39. Structure of CRH’s Annual Bonus Plan Table 21 Long-Term Incentives Operation: –– 80% of awards based on fnancial measures, such as profts, cash 2014 Performance Share Plan flow and returns A summary of the structure of CRH’s –– 20% of awards based on personal and strategic goals 2014 Performance Share Plan is set out Performance: –– 50% of maximum bonus awarded for delivering target performance in table 27. –– Maximum award size of 150% of salary for all executive Directors In 2014, shareholders approved the introduction of the 2014 Performance Deferral: –– 25% of all bonus awards deferred into shares for three years Share Plan (the “2014 PSP”). Following Malus/Clawback: –– Malus provisions for deferred share awards to provide the ability approval by shareholders, awards were to scale back awards prior to vesting in the event of material made to the executive Directors, details misstatement, serious reputational damage or the Company of which are summarised in table 38. It suffering serious losses is anticipated that awards in 2015 under –– In line with the requirements of the 2014 UK Corporate Governance the 2014 PSP will be on broadly the Code, clawback provisions will apply to the cash element of the same basis as those made in 2014. Annual Bonus Plan for 2015 awards onwards, for the same events as apply in respect of malus, for a period of three years
76 CRH Directors’ Remuneration Report | continued
2014 Annual Bonus - Measures and Weightings Table 22 Albert Manifold Maeve Carton Mark Towe % of salary % of salary % of salary Measure Target Maximum Target Maximum Target Maximum CRH EPS 18.75% 37.5% 18.75% 37.5% 15.0% 30.0% CRH Cash Flow (i) Operating Cash Flow 11.25% 22.5% 11.25% 22.5% - - (ii) Divestments 11.25% 22.5% 11.25% 22.5% - - CRH Return on Net Assets 18.75% 37.5% 18.75% 37.5% 7.5% 15.0% Oldcastle* Group PBIT** - - - - 15.0% 30.0% Oldcastle Cash Flow (i) Operating Cash Flow - - - - 15.0% 30.0% (ii) Divestments - - - - 7.5% 15.0% Personal/Strategic 15.00% 30.0% 15.00% 30.0% 15.0% 30.0% Total 75.0% 150.0% 75.0% 150.0% 75.0% 150.0%
* Oldcastle is the holding company for the Group's operations in the Americas ** PBIT is defined as earnings before interest and taxes
2014 Annual Bonus - Achievement against targets* Table 23
Performance achieved relative to targets Performance Payout Measure Threshold** Target Maximum achieved*** % of max CRH EPS 78.9c 100%
CRH Cash Flow
(i) Operating Cash Flow**** €1,477m 100%
(ii) Divestments €345m 100%
CRH RONA 7.4% 100%
Oldcastle Group PBIT N/D 100%
Oldcastle Cash Flow
(i) Operating Cash Flow N/D 100%
(ii) Divestments N/D 100%
* Specific targets have not been disclosed as these are deemed commercially sensitive at this time. Target will be disclosed retrospectively when no longer sensitive. ** 0% of each element is earned at threshold. *** Oldcastle cash flow targets have not been disclosed as it would result in the disclosure of information which is not generally available and is commercially sensitive. **** For this purpose, operating cash flow has been defined as reported internally.
2014 Annual Bonus - Achievement against Personal/Strategic targets Table 24
Payout % of Director Strong delivery in relation to: Maximum
Albert Manifold Effective leadership of the Group's portfolio review; continued progress in relation to organisational change in particular in Europe; supporting and mentoring the senior executive team; effective and clear managemnt of investor communications and building up the Group's general communication capability. 100%
Maeve Carton Continued build up of fnance organisation and expansion of fnance roles to support performance management; achievements in relation to succession to ensure a strong pipeline of fnance executives; completion of two bond issues in 2014 (including a debut Swiss bond issuance) at the lowest coupons achieved by the Group; continued build up of Group IT security and project management roles. 100%
Mark Towe Continued input in to the Group’s talent management process and supporting newly appointed Group Human Resources and Talent Development Director; working closely with the Chief Executive to refne succession planning in the Americas; leading the portfolio review process in the Americas. 100%
CRH 77 Directors’ Remuneration Report | continued
2013 Annual Bonus - Achievement against Group targets (Albert Manifold, Maeve Carton and Mark Towe) Table 25
Performance needed for payout at Performance Payout Measure Threshold Target Maximum Achieved % of max
CRH EPS 74c 80c 84c 59.5c* 0.0%
Operating Cash Flow** €1,075m €1,240m €1,340m €1,204m 52.0%
CRH RONA 6.0% 6.5% 7.0% 5.9% 0.0%
* Adjusted EPS, excluding the impact of non cash impairment recorded in 2013. ** For this purpose, operating cash flow has been defined as reported internally.
2013 Annual Bonus - Achievement against Oldcastle targets (Mark Towe) Table 26
Performance achieved relative to targets Payout Measure Threshold** Target Maximum % of max
Oldcastle Group PBIT* 93.3%
Oldcastle Cash Flow 92.6%
Oldcastle RONA 93.3%
* PBIT is defined as earnings before interest and taxes. ** 0% of each element is earned at threshold.
75% of each award made in 2014 is target is based on a cumulative adjusted the outcome of the proposed acquisition subject to a Total Shareholder Return cash fow figure over three financial of assets from Lafarge S.A. and Holcim (TSR) performance measure, with years. The definition of cash fow is Limited is known. The targets will be performance being measured against adjusted to exclude: demanding with significant stretch sector peers (see table 31 on page 80). ensuring that only exceptional –– dividends to shareholders; The vesting schedule is shown in table performance will result in a maximum 29. The Committee believes that, for a –– acquisition/investment expenditure; payout. cyclical business such as CRH, TSR is –– share issues (scrip dividend, share Vested awards will be required to be the most appropriate performance options, other); held for a further two years post-vesting. measure at present and is a key measure of the value generated for shareholders. –– financing cash fows (new loans/ 2006 Performance Share Plan repayments); The 2006 Performance Share Plan (the The TSR performance measure will be “2006 PSP”), which was approved by subject to a financial underpin. This –– back funding pension payments; and shareholders in May 2006, is tied to TSR means that when determining vesting –– foreign exchange translation. over a three year performance period. under the 2014 PSP, the Committee will It has been replaced by the 2014 PSP review whether the TSR performance The Remuneration Committee considers (see page 76), which was approved by has been impacted by unusual events that it is appropriate to make these shareholders at the 2014 Annual General and whether it is, therefore, an adjustments in order to remove items Meeting. Consequently, the last award appropriate refection of underlying that do not refect the quality of under the 2006 PSP was made in 2013. performance. In addition, the Committee management’s operational performance, Half of each award is assessed against will consider EPS performance in the or are largely outside of management TSR for a group of global building period to ensure that TSR performance control. This is to ensure that materials companies (see table 31 on was consistent with the objectives of the management remains incentivised to page 80) and the other half against TSR performance criteria and had not been make decisions which are in the best for the constituents of the Eurofirst 300 distorted by extraneous factors. long-term interests of the business and Index. shareholders. The remaining 25% of each award is The performance criteria for the 2006 subject to a cumulative cash fow metric. The cumulative adjusted cash fow target PSP are set out in table 32 on page 80. This Group financial measure supports for the award made in 2014 under the Participants are not entitled to any dividend delivery, development activity 2014 PSP are set out in table 30 on page 80. dividends (or other distributions made) and, in the context of the Group’s The adjusted cash fow target for awards and have no right to vote in respect of €1.5 - €2.0 billion multi-year divestment in 2015 under the 2014 PSP have not yet the shares subject to the award, until the programme, provides an emphasis on been set by the Remuneration shares vest. asset/business disposals. The cash fow Committee. The target will be set once
78 CRH Directors’ Remuneration Report | continued
shareholders for the introduction of the Structure of the 2014 Performance Share Plan Table 27 2014 PSP, no further awards will be –– Conditional share award which vests, subject to performance, made under the 2010 Scheme. Operation: over a three year period Consequently, the last award under the –– Awards subject to a two year holding period post vesting 2010 Scheme was made in 2013. –– 75% of awards based on relative TSR performance compared to key Options were granted at the market price peers (see table 31 on page 80) of the Company’s shares at the time of –– 25% of awards based on cumulative cash flow performance Performance: grant. The vesting period for options is (see table 30 on page 80) three years, with vesting only occurring –– Maximum award size of 250% of salary for Chief Executive and once an initial EPS performance target 200% of salary for other executive Directors has been reached. Awards under the –– Malus provisions provide the Remuneration Committee with the 2010 Scheme were limited to 150% of ability to scale back awards up to fve years from grant in the event Malus/Clawback: salary. of material misstatement, serious reputational damage or the Company suffering serious losses The performance criteria for the 2010 Scheme were agreed with the Irish Association of Investment Managers (the The rules of the 2006 PSP provide that During 2014, the Remuneration “IAIM”) and are set out in table 33 on no award, or portion of an award, which Committee determined that 49% of the page 80. The performance targets were has satisfied the TSR performance award made under the 2006 PSP in 2011 designed to provide for proportionately criteria should be released unless the (with a performance period 2011-2013) more vesting for higher levels of EPS Remuneration Committee has confirmed had vested. Details of the value of that growth. the validity of the TSR performance and award are set out in table 19 on page 75. reviewed EPS performance to assess its Further details are provided in the 2013 Vesting levels are subject to any consistency with the objectives of the Directors’ Remuneration Report. reduction which the Remuneration assessment. Committee deems appropriate in the Details of outstanding awards to context of the overall results of the In respect of the award made in 2012 Directors under the 2006 PSP are Group. (with a performance period 2012-2014), provided in table 37 on page 82. in February 2015, the Remuneration Outstanding awards are subject to the The grant of options under the 2010 Committee determined that the award performance conditions outlined above. Scheme made in 2010 and 2011 did not would lapse as, over the three-year meet the EPS performance criteria set period 2012 -2014, CRH’s TSR 2010 Share Option Scheme out above and, accordingly, the options performance was below the median of At the 2010 Annual General Meeting, lapsed on the third anniversary of the both the peer group and the Eurofirst shareholders approved the introduction date of grant. Similarly, the grant of Index. The Company’s TSR performance of the Earnings Per Share (EPS) based options made in 2012, having failed to was reviewed by the Remuneration share option scheme (the “2010 meet the appropriate EPS criteria, will Committee’s remuneration consultants. Scheme”). Following the approval by lapse in full in April 2015.
Summary of Scheme Interests Granted in 2014 Table 28
Percentage vesting Basis of at threshold Performance Expected award Number of Exercise performance period date of Director Scheme (% of salary) shares Face value* price (% of maximum) end date release
2014 PSP Albert Manifold (conditional 250% 142,900 €2,928,021 n/a 25% 31-Dec-16 Feb-2019 shares)
2014 PSP Maeve Carton (conditional 200% 59,500 €1,219,155 n/a 25% 31-Dec-16 Feb-2019 shares)
2013 Annual Bonus** 5% 2,561 €54,000 n/a n/a n/a Mar-2017 (deferred shares) Mark Towe 2014 PSP (conditional 200% 97,100 €1,989,579 n/a 25% 31-Dec-16 Feb-2019 shares)
* Face value has been calculated using the share price at the date of grant for 2014 PSP awards (€20.49). ** See table 9 on page 67 of the 2013 Annual Report for the structure of the 2013 Annual Bonus Plan.
CRH 79 Directors’ Remuneration Report | continued
Details of outstanding awards to 2014 Performance Share Plan (2014 PSP) Metrics Directors under the 2010 Scheme are 3-year TSR* performance compared to peer group Table 29 provided in tables 39 and 40 on page 83. (75% of award) Vesting Level
The Remuneration Committee has Equal to or greater than 75th percentile 100% discretionary powers regarding the implementation of the rules of the 2010 Between 50th and 75th percentile Straight line between 25% and 100% Scheme. These powers have not been Equal to 50th percentile 25% exercised since the adoption of the 2010 th Scheme. Below 50 percentile 0% * The methodology for calculating TSR assumes all dividends are reinvested on the ex-dividend date at the 2000 Share Option Scheme closing share price on that day; the open and close price is based on the three month average closing price At the Annual General Meeting held in on the last day before the start of the performance period and the final day of the performance period 2000, shareholders approved the respectively. introduction of a share option scheme Cumulative Cash Flow 2014 - 2016 (25% of award) Vesting Level Table 30 (the “2000 Scheme”). This scheme was superseded by the 2010 Scheme referred Equal to or greater than €3.5bn 100% to on page 79. No awards have been Between €2.9bn - €3.5bn Straight line between 25% - 100% made under the 2000 Scheme since Equal to €2.9bn 25% 2009. Details of outstanding awards and Below €2.9bn 0% the performance criteria for the 2000 Scheme are set out in tables 39 and 40 Peer Group for TSR Performance Metric for awards under the 2014 PSP on page 83. Table 31 and 2006 PSP
Other employee share plans Additional company included Boral Italcementi Titan Cement Maeve Carton and Albert Manifold also in the 2006 PSP Peer Group: participate in the 2010 Savings-related Buzzi Unicem Kingspan Group Travis Perkins Home Depot
Option Scheme (Republic of Ireland) Cemex Lafarge Vulcan Materials (the “2010 SAYE”) and in the Group’s Martin Marietta Irish Revenue approved Share Grafton Group Weinerberger Materials Participation Scheme (the “Participation Scheme”). Heidelberg Cement Saint Gobain Wolseley Holcim The 2010 SAYE is an Irish Revenue approved plan open to all Irish employees. Participants may save up to 2006 Performance Share Plan (2006 PSP) Metrics Table 32 €500 a month from their net salaries for 3-year TSR* performance compared to a fixed term of three or five years and at peer group/Eurofirst 300 Index Vesting Level the end of the savings period they have Equal to or greater than 75th percentile 100% the option to buy CRH shares at a th th discount of up to 15% of the market Between 50 and 75 percentile Straight line between 30% and 100% price on the date of invitation of each Equal to 50th percentile 30% savings contract. Details of the Below 50th percentile 0% outstanding awards of Maeve Carton and * The methodology for calculating TSR assumes all dividends are reinvested on the ex-dividend date at the Albert Manifold under the 2010 SAYE closing share price on that day; the open and close price is based on the closing price on the last day are set out in tables 39 and 40 on before the start of the performance period and the final day of the performance period respectively. page 83. The Participation Scheme is open to all Share Option Scheme Metrics Table 33 employees in Ireland, and grants can be Compound EPS* Growth Performance over three years made to participants up to a maximum of €12,700 annually in CRH shares. Awarded in 2010 & 2011 Awarded in 2012 & 2013 Vesting Level Equal to or greater than 27.5% p.a. Equal to or greater than 20% p.a. 100% Malus and Clawback Between 17.5% and 27.5% p.a. Between 13% and 20% p.a. Straight line between 40% and 100% From 2015 all incentive awards to Between 12.5% and 17.5% p.a. Between 10% and 13% p.a. Straight line between 20% and 40% executive Directors are subject to recovery provisions. Annual bonus Equal to 12.5% p.a. Equal to 10% p.a. 20% awards will be subject to recovery Less than 12.5% p.a. Less than 10% p.a. 0% provisions for three years from the date * The EPS figure used for the purposes of the 2010 Scheme is the basic consolidated earnings per share of the of payment (cash awards) or grant Company for the accounting period concerned as shown in the Annual Report issued by the Company for that (deferred awards). Performance Share accounting period.
80 CRH Directors’ Remuneration Report | continued
Plan awards will be subject to malus for Pension Entitlements - Defined Benefit (Audited) Table 34 the three years prior to performance assessment and the two further years of Increase in Transfer value Total accrued the holding period. accrued of increase in personal personal pension dependents’ pension at Malus or clawback provisions may be during 2014 pension year-end triggered in the event of: (i) (i) (ii) € 000 € 000 € 000 –– material misstatement; Executive Directors –– serious reputational damage; or Albert Manifold - 208 273 – – the Company suffering serious losses. Maeve Carton - 29 266
Retirement Benefit Expense (i) As noted on page 75, the pensions of Albert Manifold and Maeve Carton have been capped in line Maeve Carton and Albert Manifold are with the provisions of the Irish Finance Acts. However, dependants’ pensions continue to accrue resulting in Greenbury transfer values which have been calculated on the basis of actuarial advice. participants in a contributory defined These amounts do not represent sums paid out or due, but are the amounts that the pension benefit plan which is based on an scheme would transfer to another pension scheme in relation to benefits accrued in 2014 in the accrual rate of 1/60th of salary* for each event of these Directors leaving service. year of pensionable service and is (ii) The accrued pensions shown are those which would be payable annually from normal designed to provide two-thirds of career retirement date. average salary at retirement for full service. If either Maeve Carton or Albert Pension Entitlements - Defined Contribution (Audited) Table 35 Manifold leave service prior to Normal Retirement Age (60) they will become The accumulated liablilities related to the unfunded Supplemental Executive Retirement Plans for Mark Towe entitled to a deferred pension, payable are as follows: 2014 from Normal Retirement Age, based on As at Notional As at the pension they have accrued to their 31 December 2014 interest Translation 31 December date of leaving. 2013 contribution (iii) adjustment 2014 € 000 € 000 € 000 € 000 € 000 The Finance Act 2006 effectively established a cap on pension provisions Executive Director by introducing a penalty tax charge on Mark Towe 1,923 194 97 288 2,502 pension assets in excess of the higher of (iii) Notional interest, which is calculated based on the average bid yields of United States Treasury €5 million (in the Finance Act 2011, this fixed-coupon securities with remaining terms to maturity of approximately 20 years, plus 1.5%, is threshold was reduced to €2.3 million credited to the above plans. and reduced further to €2 million by the Finance Act (No. 2) Act 2013) or the value of individual accrued pension entitlements as at 7 December 2005. As a liability represented by the pension Details regarding pension entitlements result of these legislative changes, the benefits foregone. They are calculated for the executive Directors are set out in Remuneration Committee decided that based on actuarial advice as the tables 34 and 35. equivalent of the reduction in the executive Directors should have the There is no change to the pension Company’s liability to each individual option of continuing to accrue pension arrangements for 2015. benefits as previously, or of choosing an and spread over the term to retirement alternative arrangement - by accepting as annual compensation allowances. pension benefits limited by the cap - The contributory defined benefit plan in with a similar overall cost to the Group. which Albert Manifold and Maeve Maeve Carton and Albert Manifold have Carton participate is closed to new opted for an arrangement whereby their entrants. pensions are capped in line with the provisions of the Finance Acts and Mark Towe participates in a defined receive a supplementary taxable contribution retirement plan in respect non-pensionable cash supplement in of basic salary; and in addition he lieu of pension benefits forgone. There participates in an unfunded defined was, therefore, no additional accrual in contribution Supplemental Executive 2014. Retirement Plan (SERP) also in respect of basic salary, to which contributions The cash pension supplements for 2014 are made at an agreed rate (20%), offset are detailed in table 19 on page 75. by contributions made to the other These supplements are similar in value retirement plan. to the reduction in the Company’s * Salary is defined as basic annual salary and excludes any fluctuating emoluments.
CRH 81 Directors’ Remuneration Report | continued
Directors’ Interests in Shares and Share Scheme Awards
Deferred Share Awards under the Annual Bonus Plan (i) (Audited) Table 36
Alloted under Awards in the scrip dividend 31 December 2014 scheme in Released in 31 December Release 2013 (ii) 2014 2014 2014 Date
Mark Towe - 2,561 65 - 2,626 Feb 2017
(i) Under the Annual Bonus Plan in operation in respect of the financial year ended 31 December 2013, up to one-third of the earned bonus was receivable in CRH shares, deferred for a period of three years, with forfeiture in the event of departure from the Group in certain circumstances during that period. (ii) The shares awarded during 2014 related to the deferred portion of 2013 bonus and were included in total remuneration reported for 2013. These shares were purchased by the Trustees of the CRH plc Employee Benefit Trust on 26 February 2014 at €20.375 per Ordinary Share.
Directors’ awards under the 2006 Performance Share Plan (i) (Audited) Table 37
Market 31 December Granted in Released in Lapsed in 31 December Performance Release Price in euro 2013 2014 2014 (ii) 2014 (ii) 2014 Period Date on award
Maeve Carton 42,000 - 20,626 21,374 - 01/01/11 - 31/12/13 50,000 - - - 50,000 01/01/12 - 31/12/14 15.19 50,000 - - - 50,000 01/01/13 - 31/12/15 February 2016 16.19 142,000 - 20,626 21,374 100,000
Albert Manifold 62,000 - 30,448 31,552 - 01/01/11 - 31/12/13 70,000 - - - 70,000 01/01/12 - 31/12/14 15.19 72,000 - - - 72,000 01/01/13 - 31/12/15 February 2016 16.19 204,000 - 30,448 31,552 142,000
Mark Towe 68,000 - 33,394 34,606 - 01/01/11 - 31/12/13 90,000 - - - 90,000 01/01/12 - 31/12/14 15.19 90,000 - - - 90,000 01/01/13 - 31/12/15 February 2016 16.19 248,000 - 33,394 34,606 180,000
(i) 2006 Performance Share Plan: This is a long-term share incentive plan under which share awards are granted in the form of a provisional allocation of shares for which no exercise price is payable. The shares scheduled for release in February 2016 will be allocated to the extent that the relative TSR performance conditions are achieved. The structure of the 2006 Performance Share Plan is set out on page 78. (ii) In 2014, the Remuneration Committee determined that 49.11% of the 2011 award vested and that portion of the award was released to participants. The balance of the 2011 award lapsed. The market value per share for tax purposes on the date of release was €21.28 for Directors resident in Ireland and €21.505 for Directors resident outside Ireland.
Directors’ Awards under the 2014 Performance Share Plan (i) (Audited) Table 38
Market Dividend Price 31 December Granted in Equivalents Released in Lapsed in 31 December Performance Release in euro 2013 2014 2014 (ii) 2014 2014 2014 Period Date on award
Maeve Carton - 59,500 618 - - 60,118 01/01/14 - 31/12/16 February 2019 20.49 Albert Manifold - 142,900 1,484 - - 144,384 01/01/14 - 31/12/16 February 2019 20.49 Mark Towe - 97,100 1,008 - - 98,108 01/01/14 - 31/12/16 February 2019 20.49
(i) 2014 Performance Share Plan: This is a long-term share incentive plan under which share awards are granted in the form of a provisional allocation of shares for which no exercise price is payable. The shares scheduled for release in February 2019 will be allocated to the extent that the relevant performance conditions are achieved. The structure of the 2014 Performance Share Plan is set out in table 27 on page 79. (ii) The Remuneration Committee has determined that dividend equivalents should accrue on awards under the 2014 Performance Share Plan. Subject to the satisfaction of the applicable performance criteria, such dividend equivalents will be released to participants in the form of additional shares at vesting.
82 CRH Directors’ Remuneration Report | continued
Directors’ Share Options (Audited) Table 39
Details of movements on outstanding options and those exercised during the year are set out in the table below Options exercised during 2014
Weighted Weighted average Weighted average option price at average market 31 December exercise price at date 31 December Granted in Lapsed Exercised 31 December 2014 price of exercise 2013 2014 in 2014 in 2014 2014 € € €
Maeve Carton 55,831 - - - 55,831 (a) 25.75 - - 13,308 - 13,308 - - (b) - - - 139,500 - 42,500 - 97,000 (c) 15.67 - - - 1,726 - - 1,726 (d) 17.67 - -
Albert Manifold 166,445 - - - 166,445 (a) 21.97 - - 16,635 - 16,635 - - (b) - - - 200,000 - 62,500 - 137,500 (c) 15.68 - - 2,236 - - - 2,236 (d) 13.64 - -
Mark Towe 155,425 - - 22,344 133,081 (a) 24.38 15.09 21.53 49,905 - 49,905 - - (b) - - - 245,000 - 70,000 - 175,000 (c) 15.68 - - 1,044,285 1,726 254,848 22,344 768,819
Option by price (Audited) Table 40
31 December Granted Lapsed Exercised 31 December Earliest € 2013 in 2014 in 2014 in 2014 2014 exercise date Expiry date
15.0674 29,943 - 29,943 - - (b) 15.0854 22,344 - - 22,344 - (a) 15.0854 49,905 - 49,905 - - (b) 18.7463 16,635 - - - 16,635 (a) February 2015 April 2015 18.8545 27,725 - - - 27,725 (a) February 2015 April 2015 26.1493 72,085 - - - 72,085 (a) April 2016 29.4855 53,232 - - - 53,232 (a) April 2017 29.8643 36,043 - - - 36,043 (a) April 2017 21.5235 99,637 - - - 99,637 (a) April 2018 16.58 50,000 - - - 50,000 (a) April 2019 16.38 175,000 - 175,000 - - (c) 15.19 210,000 - - - 210,000 (c) April 2022 16.19 199,500 - - - 199,500 (c) April 2023 13.64 2,236 - - - 2,236 (d) August 2017 January 2018 17.67 - 1,726 - - 1,726 (d) August 2019 January 2020 1,044,285 1,726 254,848 22,344 768,819
The market price of the Company's shares at 31 December 2014 was €19.90 and the range during 2014 was €15.86 to €21.82. (a) Granted under the 2000 share option scheme, these options are only exercisable when EPS growth exceeds the growth of the Irish Consumer Price Index by 5% compounded over a period of at least three years subsequent to the granting of the options. (b) Granted under the 2000 share option scheme, these options are only exercisable if, over a period of at least five years subsequent to the granting of the options, the growth in EPS exceeds the growth of the Irish Consumer Price Index by 10% compounded and places the Company in the top 25% of EPS performance of a peer group of international building materials and other manufacturing companies. If below the 75th percentile, these options are not exercisable. (c) Granted under the 2010 share option scheme. Vesting will only occur once an initial performance target has been reached and, thereafter, will be dependent on performance. The performance criteria are set out in table 33 on page 80. (d) Granted under the 2010 savings-related share option scheme.
CRH 83 Directors’ Remuneration Report | continued
Shareholding guidelines for must be achieved within five years of the shareholding level should be increased, executive Directors change. The current shareholding levels particularly in relation to the Chief as a multiple of basic salary are shown Executive role. The Remuneration The Remuneration Committee adopted a policy in 2013 whereby executive in table 41. Committee concluded that, as the guidelines were only recently Directors are required to build up (and Following his appointment as Chief introduced, it was not appropriate to maintain), within five years of Executive on 1 January 2014, the increase the requirement at this time. appointment a minimum holding in Remuneration Committee determined However, the Committee will look to CRH shares which is equivalent to one that Albert Manifold will be required to increase shareholding guidelines in the times basic salary. For existing executive meet the shareholding guideline by 31 future as the Chief Executive builds on Directors this level must be achieved by December 2017. 31 December 2015, unless the executive his existing holding. Director has a significant change in role As part of the remuneration review which results in a step change in salary carried out in 2013, the Remuneration in which case the one times salary level Committee considered whether the
Executive Director Shareholdings* Table 41
120,000
100,000
80,000
60,000 2.4x 40,000 3.0x times salary times salary 20,000 0.8x times salary 0
Albert Manifold Maeve Carton Mark Towe
* The shareholdings are calculated based on the closing share price on 24 February 2015 (€24.92) and do not include Deferred Shares to be awarded under the 2014 Annual Bonus Plan (which will be released in 2018). If the Deferred Shares were included in the above table (on a post-tax basis) the executive Directors’ shareholdings would be approximately 0.9, 3.2 and 2.6 times salary respectively.
84 CRH Directors’ Remuneration Report | continued
Shareholdings of Directors and Company Secretary as at 31 December 2014
Directors’ Interests in Share Capital at 31 December 2014 (Audited) Table 42
The interests of the Directors and Secretary in the shares of the Company, which are benefcial unless otherwise indicated, are shown below. The Directors and Secretary have no benefcial interests in any of the Group’s subsidiary, joint venture or associated undertakings.
31 December 31 December Ordinary Shares 2014 2013
Directors E.J. Bärtschi 25,200 7,200 M. Carton 82,036 60,100 W.P. Egan 16,112 16,112 - Non-benefcial 12,000 12,000 U-H. Felcht 1,285 1,285 N. Hartery 12,265 1,430 J.W. Kennedy 1,083 1,049 D.A. McGovern, Jr. 5,131 4,000 H.A. McSharry 3,886 3,789 A. Manifold 39,998 38,981 D.N. O’Connor 17,344 16,915 H. Th. Rottinghuis 15,124 -** M. Towe 100,276* 77,117
Secretary N. Colgan 15,549 10,836 347,289 250,814
There were no transactions in the above Directors’ and Secretary’s interests between 31 December 2014 and 25 February 2015. Of the above holdings, the following are held in the form of American Depository Receipts:
31 December 31 December 2014 2013
W.P. Egan 15,000 15,000 - Non-benefcial 12,000 12,000 D.A. McGovern, Jr. 5,131 4,000
Patrick J. Kennedy became a Director on 1 January 2015. He did not have a holding of CRH shares on appointment and there were no transactions between 1 January and 25 February 2015. On 18 February 2015, Lucinda Riches was appointed a Director with effect from 1 March 2015. She does not have a holding of CRH shares. * Excludes awards of Deferred Shares, details of which are disclosed in table 36 on page 82. ** Holding at date of appointment.
CRH 85 Directors’ Remuneration Report | continued
Non-executive Directors the remuneration, the Board receives Fees for the non-executive Directors recommendations from a committee were reviewed during 2014. It was Remuneration paid to non-executive of the Chairman and the executive concluded that CRH’s fees are Directors in 2014 is set out in table 43. Directors. The Remuneration Committee competitively positioned at present and The remuneration of non-executive determines the remuneration of the should remain unchanged in 2015. Directors is determined by the Board Chairman. Fees for 2015 are set out in table 44. of Directors as a whole. In determining
Individual Remuneration for the year ended 31 December 2014 (Audited) Table 43 Basic Other Salary and Fees Benefits Remuneration Total (a) (b) (c) € 000 € 000 € 000 € 000 2014 2013 2014 2013 2014 2013 2014 2013
Non-executive Directors E.J. Bärtschi 68 68 - - 71 48 139 116 W.P. Egan 68 68 - - 52 52 120 120 U-H. Felcht 68 68 - - 37 37 105 105 N. Hartery 68 68 10 23 382 382 460 473 J.M. de Jong (d) 24 68 5 - 13 60 42 128 J.W. Kennedy 68 68 - - 37 37 105 105 D.A. McGovern Jr. (e) 68 34 - - 52 26 120 60 H.A. McSharry 68 68 - - 22 22 90 90 D.N. O'Connor 68 68 - - 56 56 124 124 H.Th. Rottinghuis (f) 59 - - - 27 - 86 - 627 578 15 23 749 720 1,391 1,321
(a) Fee levels for non-executive Directors were unchanged in 2014. (b) Benefits: In the case of Nicky Hartery the amount reflects the reimbursement of travel expenses from his residence to his Chairman’s office in Dublin, which have been grossed up for Irish tax purposes. In the case of Jan Maarten de Jong, it also includes the value of a gift given to him on his retirement. (c) Other Remuneration: Includes remuneration for Chairman, Board Committee work and allowances for non-executive Directors based outside of Ireland. (d) Jan Maarten de Jong retired as a Director on 7 May 2014. (e) Don McGovern became a Director on 1 July 2013. (f) Henk Rottinghuis became a Director on 18 February 2014.
Non-executive Director Fee Structure Table 44
Role Amount Group Chairman (including non-executive Director salary and fees for committee work) €450,000 Non-executive Director (basic salary and fees for committee work) €90,000 Additional fees: Senior Independent Director/Remuneration Committee Chairman* €34,000 Audit Committee Chairman €34,000 Fee for Europe-based non-executive Directors €15,000 Fee for US-based non-executive Directors €30,000
* If the roles of Senior Independent Director and Remuneration Committee Chair are not combined, fees of €25,000 and €15,000 apply respectively.
86 CRH Directors’ Remuneration Report | continued
TSR performance since 2004 (i) Table 45 TSR performance since 2008 (i) Table 46
200 250
200 150 CRH CRH
150 100 FTSE 100 FTSE 100 100 Eurofirst 300 Eurofirst 300 50 50
0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014
(i) For the purposes of comparability, the FTSE 100 Index has been converted to euro using the closing exchange rate at each year-end.
Other Disclosures Remuneration paid to Chief Executive The percentage change in the Chief 2009 - 2014 Executive’s salary, benefits and bonus Fees paid to former Directors Table 47 shows the total remuneration between 2013 and 2014 was as follows: No payments have been made to paid to the Chief Executive in the period Salary +1.7% individual former directors in excess 2009 to 2014 inclusive and shows Benefits +69.6% of the de minimis threshold of €20,000 bonuses and vested long-term incentive Bonus +327.6% per annum agreed by the Remuneration awards as a percentage of the maximum Committee. bonus and award that could have been The combined percentage change was Executives’ external appointments received in each year. Albert Manifold +87.1%. The executive Directors may accept succeeded Myles Lee as Chief Executive There was a 1.5% increase in the total external appointments with the prior effective from 1 January 2014. average employment costs in respect approval of the Board provided that The percentage increase in the Chief of employees in the Group as a whole such appointments do not prejudice Executive’s salary in the period 2009 to between 2013 and 2014. the individual’s ability to fulfil their 2014 is set out in table 15 on page 72. duties at the Group. Whether any related fees are retained by the individual or remitted to the Group is considered on a case-by-case basis. Maeve Carton was appointed as a Chief Executive 2009 - 2014 inclusive Table 47 non-executive member of the National Myles Lee Albert Treasury Management Agency, an (€m) (2009-2013) Manifold Irish state body that provides asset and €4.5 liability management services to the €4.2m Irish government in December 2014. €4.0 €3.6m Total Shareholder Return €3.5 Other The value at 31 December 2014 of €100 €3.0 €2.9m €2.6m €2.6m Retirement Benefts invested in 2004 and 2008 respectively, €2.5m PSP: compared with the value of €100 €2.5 49% LTIP: Long-Term Incentives invested in the Eurofirst 300 Index and 34% 100% €2.0 Bonus the FTSE 100 Index (which CRH joined 17% 50%** 46% in December 2011) is shown in the €1.5 39% * 27.8% 30% Benefts graphs above. 22% 21% €1.0 Salary TSR performance has been compared against the FTSE 100 and the Eurofirst €0.5 300 as these are broad general market €0.0 indices on which CRH is a constituent. 2009 2010 2011 2012 2013 2014 The Committee, therefore, considers that they offer a reasonable comparison for performance. * Value of bonus award each year as a percentage of the maximum opportunity. Compound TSR growth since the ** Value of vested incentive awards as a percentage of the maximum opportunity; in respect of 2013 the formation of the Group in 1970 long-term incentive award value is made up of vestings under the 2006 Performance Share Plan (49.1% (assuming the reinvestment of of maximum) and the 2009 CEO LTIP (33.7% of maximum). There was no long-term incentive vesting in dividends) is 15.7%. relation to awards with a performance period ending in 2012 or 2014.
CRH 87 Directors’ Remuneration Report | continued
Relative importance of spend on pay Relative Importance of Spend on Pay Table 48 Table 48 sets out the amount paid by the Group in remuneration to employees €4,500 compared to dividend distributions €4,000 made to shareholders in 2013 and 2014. €3,500 The average number of employees is €3,000 set out in note 5 to the Consolidated €2,500 €2,000 Financial Statements on page 121. We €4,034 €3,955 have also shown the change in EBITDA €1,500 performance year on year to provide €1,000 €1,641 €1,475 an indication of the change in profit €500 €460 €455 performance. €0 Dividends €m Remuneration received by EBITDA €m The Remuneration Committee and all employees €m
Advisors 2013 2014
The non-executive Directors who Note: the increase in employment costs for all employees reflects an increase in employee numbers due were members of the Remuneration to acquisitions and increased activity in the United States. Committee during 2014, together with their record of attendance at Committee meetings, are identified on page 68. Don 2014 AGM – Remuneration Related Votes Table 49
McGovern joined the Committee with Total No. of effect from 1 January 2015. votes cast No. of votes (incl. votes % of issued Risk policies and systems % in Favour % Against withheld withheld) share capital During 2014, the Chairman of the Directors’ Remuneration Remuneration Committee reviewed 98.1% 1.9% 13,587,697 511,227,387 69.6% with the Audit Committee the Group’s Report (“Say on Pay”) remuneration structures from a risk Remuneration Policy Report 95.2% 4.8% 3,648,186 511,208,343 69.6% perspective.
Remuneration consultants –– attendance at Committee meetings, meeting the Remuneration Committee Deloitte LLP was appointed as the when required. determined that there were no concerns Committee’s remuneration consultants with the Group’s remuneration Deloitte also provide other consultancy in 2013 following a tender process. The structures that required investigation. Committee has satisfied itself that the services to the Company in relation advice provided by Deloitte is robust to support for Internal Audit, when Following the 2014 Annual General and independent and that the Deloitte required and in respect of talent Meeting we also met with a major LLP engagement partner and team that management and human resources, shareholder to discuss the metrics used provide remuneration advice to the taxation and sustainability. for CRH’s long-term incentive structures and we received correspondence from Committee do not have connections In respect of work carried out by another shareholder regarding their with CRH plc that may impair their Deloitte on behalf of the Remuneration perspectives in relation to the disclosure independence. Deloitte are signatories Committee in 2014, fees in the amount of annual targets (which we believe our to the Voluntary Code of Conduct in of €49,000 were incurred. relation to executive remuneration disclosures on pages 77 and 78 address). consulting in the UK. 2014 Annual General Meeting votes on remuneration matters During 2014, Deloitte provided the following remuneration services: The voting outcome in respect of the remuneration related votes at the 2014 –– research and advice regarding Annual General Meeting is set out in remuneration trends, best practice and table 49. remuneration levels for executive and non-executive directors in companies Shareholder Engagement of similar size and complexity; The Chairman and the Remuneration –– guidance and advice in relation to Committee Chairman met with a number remuneration developments; of the Group’s major shareholders in advance of the 2014 Annual General –– analysis of TSR workings under the Meeting. No issues of concern in relation 2006 Performance Share Plan; to remuneration arose. As the voting –– advice in relation to remuneration was overwhelmingly in favour of the matters generally; and “Say on Pay” resolution, following the
88 CRH Directors’ Remuneration Report | continued
Details of remuneration charged against profit in 2014
Directors’ Remuneration* (Audited) Table 50 2014 2013 € 000 € 000
Executive Directors Basic salary 2,861 3,591 Performance-related incentive plan - cash element 3,219 1,833 - deferred shares element 1,073 54 Retirement benefts expense 1,026 1,660 Benefts 114 126 8,293 7,264 Provision for Chief Executive long-term incentive plan** - (1,062) Total executive Directors’ remuneration 8,293 6,202
Average number of executive Directors 3.00 4.00
Non-executive Directors Fees 627 578 Other remuneration 749 720 Benefts 15 23 Total non-executive Directors’ remuneration 1,391 1,321
Average number of non-executive Directors 9.30 8.50
Payments to former Directors*** 23 23 Total Directors’ remuneration 9,707 7,546
* See analysis of 2014 remuneration by individual in tables 19 and 43 on pages 75 and 86. ** As set out on page 69 of the 2013 Directors ‘Remuneration Report, former Chief Executive Myles Lee had a special long-term incentive plan tied to the achievement of exceptional growth and key strategic goals for the five-year period 2009 to 2013 with a total maximum earnings potential of 40% of aggregate basic salary, amounting to a potential €2,312,000. The actual earnings under this plan amounted to €778,127, payment of which was made in 2014. Annual provisions of 40% of basic salary were made in respect of this plan for the years 2009 through 2012 amounting in total to €1,840,000. The difference between the total provided for and the sum paid, which amounts to €1,061,873, is reflected as a reduction in the amount of total Directors’ remuneration for 2014. *** Consulting and other fees paid to a number of former directors.
CRH 89 Directors’ Remuneration Report | continued
Remuneration Policy Summary • properly reward and motivate The Committee’s policy in this area executive Directors to perform in the is that service contracts will be put in The following summarises the key long-term interest of the shareholders; place for newly appointed executive elements of CRH’s Remuneration Policy Directors and in cases where there is (the “Policy”), which was approved • provide an appropriate blend of fixed a significant step change in Directors’ by shareholders at the 2014 Annual and variable remuneration and short responsibilities. It is currently General Meeting. A copy of the Policy is and long-term incentives for executive anticipated that these terms will be available on the Group’s website, Directors; similar to those agreed with the Chief www.crh.com. • complement CRH’s strategy of Executive. As an Irish incorporated company, CRH fostering entrepreneurship in its Under Irish company law, CRH is not is not required to comply with section regional companies by rewarding the required to make service contracts 439A of the UK Companies Act 2006 creation of shareholder value through available for inspection as the notice which requires UK companies to submit organic and acquisitive growth; period is less than 12 months. Service their remuneration policy to a binding • refect the spread of the Group’s contracts will only be available with the shareholder vote. However, maintaining operations so that remuneration executive Director’s consent due to data high levels of corporate governance is packages in each geographical area are protection reasons. important to CRH and, therefore, the appropriate and competitive for that Company intends to operate within the area; and Policy unless it is not practical to do so On behalf of the Board in exceptional circumstances. However, • refect the risk policies of the Group. as an Irish incorporated company, CRH In setting remuneration levels, the cannot rely on the statutory provisions Remuneration Committee takes into Dan O’Connor applicable to UK companies under consideration the remuneration practices Remuneration Committee Chairman the 2013 UK Regulations which, in of other international companies of certain circumstances, can resolve any similar size and scope and trends in inconsistency between a remuneration executive remuneration generally, policy and any contractual or other right in each of the regions in which the of a Director. In the event there were to Company operates. The Remuneration be such an inconsistency the Company Committee also takes into account the may be obliged to honour any such right, EU Commission’s recommendations on notwithstanding it may be inconsistent remuneration in listed companies. with the Policy. Executive Director service contracts The Remuneration Committee’s aim is and policy on payment for loss of office to make sure that CRH’s pay structures are fair, responsible and competitive, When determining leaving arrangements in order that CRH can attract and retain for an executive Director, the Committee staff of the calibre necessary for it to takes into account any contractual compete in all of its markets. agreements (including any incentive arrangements) and the performance and The Group’s remuneration structures conduct of the individual. are designed to drive performance and link rewards to responsibility and the Service contracts individual contribution of executives. The Chief Executive has entered into It is policy to grant participation in a service contract with the Company. the Group’s performance-related plans Table 52 sets out the key remuneration to key management to encourage terms of this contract. identification with shareholders’ The Finance Director (Maeve Carton) interests and to create a community of and Chief Executive, Oldcastle, Inc. interest among different regions and (Mark Towe) do not currently have nationalities. service contracts. They do not have a The policy on Directors’ remuneration, notice period in excess of 12 months which is derived from the overall Group or an entitlement to any benefits policy, is designed to: on termination of employment. The Committee will determine the • help attract and retain Directors of the amount, if any, paid on termination highest calibre who can bring their taking into account the circumstances experience and independent views around departure and the prevailing to the policy, strategic decisions and employment law. governance of CRH;
90 CRH Directors’ Remuneration Report | continued
Remuneration Policy for non-executive Directors
Approach to Setting Fees Basis of Fees Other Items Table 51
• The remuneration of non-executive • Fees are paid in cash. • The non-executive Directors do not Directors is determined by a Board • Non-executive Director fees policy is to participate in any of the Company’s committee of the Chairman and the pay: performance-related incentive plans or executive Directors. share schemes. - A basic fee for membership of the • The Remuneration Committee determines Board; • Non-executive Directors do not receive the remuneration of the Chairman within pensions. the framework or broad policy agreed with - An additional fee for chairing a Committee; • The Group Chairman is reimbursed for the Board. expenses incurred in travelling from his • Remuneration is set at a level which will - An additional fee for the role of Senior residence to his CRH offce. The attract individuals with the necessary Independent Director (SID) (if the SID is Company settles any tax incurred on this experience and ability to make a substantial not the Chairman of the Remuneration on his behalf. Committee); contribution to the Company’s affairs and • Non-executive Directors do not currently reflect the time and travel demands of - An additional fee to reflect committee receive any benefts. However, benefts Board duties. work (combined fee for all committee may be provided in the future if, in the • Fees are set taking into account typical roles); and view of the Board (for non-executive practice at other companies of a similar - An additional fee based on the location Directors or for the Chairman), this was size and complexity to CRH. of the Director to reflect time spent considered appropriate. The Company • Fees are reviewed at appropriate intervals. travelling to Board meetings. may settle any tax due on benefts. • Other fees may also be paid to reflect other board roles or responsibilities. • In accordance with the Articles of Association, shareholders set the maximum aggregate amount of the fees payable to non-executive Directors. The current limit of €750,000 was set by shareholders at the Annual General Meeting held in 2005.
Chief Executive Service Contract Table 52
Notice period • 12 months’ notice by the Company or the executive.
Expiry date • Indefnite duration. • Terms of contract will automatically terminate on the executive’s 62nd birthday.
Termination • On lawful termination of employment, the Committee may, at its absolute discretion, make a termination payment in payments lieu of 12 months’ notice based on base salary, benefts and pension contribution due during that period. • Where the Company terminates the contract lawfully without notice then no payment in lieu of notice shall be due. • If, in the event of a change of control, there is a diminution in the role and responsibilities of the Chief Executive he may terminate the contract; on such termination a payment equal to one year’s remuneration (being salary, pension, other benefts and vested incentive awards) will be made to the executive.
Disability • In the event that the Chief Executive falls ill or is injured in such a way as which would constitute ill-health or disablement so that the Chief Executive could not work for a period of more than six months, in lieu of the early ill-health retirement provisions in the pension scheme which would otherwise operate in such cases, he shall be entitled to receive a disability salary of €1,000,000 per annum. Such payment would cease when the Chief Executive reaches age 60, returns to work or if the service agreement is terminated.
Other information • The Company retains the ability to suspend the executive from employment on full salary and to require the executive to observe a period of “garden leave” of up to 12 months on full salary, contractual benefts and pension contribution.
CRH 91 Directors’ Remuneration Report | continued
Policy table Further details regarding the operation of the Policy can be found on pages 75 to 89 of the Annual Statement on Remuneration. Table 53
Fixed Element Base salary Pension Benefits
Purpose and • Competitive salaries help to attract and retain staff with the • Pension arrangements provide competitive and appropriate • To provide a market-competitive level of benefts for executive Directors. link to strategy experience and knowledge required to enable the Group to retirement plans. compete in its markets. • Given the long-term nature of the business, pension is an important part of the remuneration package to support creation of value and succession planning.
Operation • Base salaries are set by the Committee taking into account: • Irish-based executive Directors participate in a contributory • The Committee’s policy is to set beneft provision at an appropriate market competitive level taking into account market practice, the level of –– the size and scope of the executive Director’s role and defned beneft scheme. benefts provided for other employees in the Group, the individual’s home jurisdiction and the jurisdiction in which the individual is based. responsibilities; • The US-based executive Director participates in a defned • Employment-related benefts include the use of company cars (or a car allowance), medical insurance for the Director and his/her family/life –– the individual’s skills, experience and performance; contribution scheme and in an unfunded Supplemental assurance. Executive Retirement Plan (SERP). –– salary levels at FTSE listed companies of a similar size and • In the event that the Chief Executive falls ill or is injured in such a way as which would constitute ill-health or disablement so that the Chief complexity to CRH and other international construction • The defned beneft scheme which the Di rectors participate Executive could not work for a period of more than six months, in lieu of the early ill-health retirement provisions in the pension scheme and building materials companies; and in is closed to new entrants. which would otherwise operate in such cases, he shall be entitled to receive a disability salary of €1,000,000 per annum. Such payment would cease when the Chief Executive reaches age 60, returns to work or if the service agreement is terminated. –– pay and conditions elsewhere in the Group. • For new appointments to the Board, the Committee may determine that alternative pension provisions will operate • The Chief Executive, Oldcastle Inc. also receives benefts in relation to club membership and short term disability insurance. • Base salary is normally reviewed annually with changes (for example a defned contribution scheme or cash generally effective on 1 January, although the Committee • Benefts may also be provided in respect of legal fees incurred in respect of agreeing service contracts, or similar agreements (for which the contribution). When determining pension arrangements for may make an out-of-cycle increase if it considers it to be Company may settle any tax incurred by the executive Director) and a gift on retirement. new appointments, the Committee will give regard to existing appropriate. • The Committee may remove benefts that executive Directors receive or introduce other benefts if it is considered appropriate to do so. entitlements, the cost of the arrangements, market practice The Company may also pay the tax due on benefts if it considers that it is appropriate to do so. and the pension arrangements received elsewhere in the Group. • All-employee share schemes – executive Directors are eligible to participate in the Company’s all-employee share schemes on the same terms as other employees. • Relocation policy – where executive Directors are required to relocate to take up their role, the Committee may determine that they should receive appropriate relocation and ongoing expatriate benefts. The level of such benefts would be determined based on individual circumstances taking into account typical market practice.
Maximum • Base salaries are set at a level which the Committee • The defned beneft pension is provided through an Irish • The level of beneft provided will depend on the cost of providing individual items and the individual’s circumstances, and therefore the opportunity considers to be appropriate taking into consideration the Revenue approved retirement beneft scheme up until the Committee has not set a maximum level of benefts. factors outlined in the “operation” section. pension cap established in the Finance Act 2006 (see details • While there is no maximum base salary, normally increases on page 81). Accrued benefts for service to 31 December will be in line with the typical level of increase awarded to 2011 are based on pensionable salary and years of service th other employees in the Group but may be higher in certain as at that date (annual accrual of 1/60 ), with this tranche circumstances. These circumstances may include: being revalued annually at the Consumer Price Index subject to a 5% ceiling. For service subsequent to that date, a –– Where a new executive Director has been appointed at career-average revalued earnings system was introduced a lower salary, higher increases may be awarded over an with each year of service being subject to annual revaluation initial period as the executive Director gains in experience on the same basis as outlined above. Irish based executive and the salary is moved to what the Committee considers Directors receive a supplementary taxable non-pensionable is an appropriate positioning; cash allowance in lieu of pension benefts foregone as a –– Where there has been a signifcant increase in the scope result of the pension cap. These allowances are similar in or responsibility of an executive Director’s role or where value to the reduction in the Company’s liability represented an individual has been internally promoted, higher salary by the pension beneft foregone. Whilst there is no absolute increases may be awarded; and maximum to the quantum of these payments they are –– Where a larger increase is considered necessary to reflect calculated based on actuarial advice as the equivalent of the signifcant changes in market practice. reduction in the Company’s liability to each individual and spread over the term to retirement as annual compensation allowances.
• The US-based executive Director participates in a defned contribution retirement plan in respect of basic salary; and in addition he participates in an unfunded defned contribution SERP also in respect of basic salary, to which contributions are made at an agreed rate (20%), offset by contributions made to the other retirement plan.
Performance n/a n/a n/a measures
92 CRH Directors’ Remuneration Report | continued
Policy table Further details regarding the operation of the Policy can be found on pages 75 to 89 of the Annual Statement on Remuneration. Table 53
Fixed Element Base salary Pension Benefits
Purpose and • Competitive salaries help to attract and retain staff with the • Pension arrangements provide competitive and appropriate • To provide a market-competitive level of benefts for executive Directors. link to strategy experience and knowledge required to enable the Group to retirement plans. compete in its markets. • Given the long-term nature of the business, pension is an important part of the remuneration package to support creation of value and succession planning.
Operation • Base salaries are set by the Committee taking into account: • Irish-based executive Directors participate in a contributory • The Committee’s policy is to set beneft provision at an appropriate market competitive level taking into account market practice, the level of –– the size and scope of the executive Director’s role and defned beneft scheme. benefts provided for other employees in the Group, the individual’s home jurisdiction and the jurisdiction in which the individual is based. responsibilities; • The US-based executive Director participates in a defned • Employment-related benefts include the use of company cars (or a car allowance), medical insurance for the Director and his/her family/life –– the individual’s skills, experience and performance; contribution scheme and in an unfunded Supplemental assurance. Executive Retirement Plan (SERP). –– salary levels at FTSE listed companies of a similar size and • In the event that the Chief Executive falls ill or is injured in such a way as which would constitute ill-health or disablement so that the Chief complexity to CRH and other international construction • The defned beneft scheme which the Di rectors participate Executive could not work for a period of more than six months, in lieu of the early ill-health retirement provisions in the pension scheme and building materials companies; and in is closed to new entrants. which would otherwise operate in such cases, he shall be entitled to receive a disability salary of €1,000,000 per annum. Such payment would cease when the Chief Executive reaches age 60, returns to work or if the service agreement is terminated. –– pay and conditions elsewhere in the Group. • For new appointments to the Board, the Committee may determine that alternative pension provisions will operate • The Chief Executive, Oldcastle Inc. also receives benefts in relation to club membership and short term disability insurance. • Base salary is normally reviewed annually with changes (for example a defned contribution scheme or cash generally effective on 1 January, although the Committee • Benefts may also be provided in respect of legal fees incurred in respect of agreeing service contracts, or similar agreements (for which the contribution). When determining pension arrangements for may make an out-of-cycle increase if it considers it to be Company may settle any tax incurred by the executive Director) and a gift on retirement. new appointments, the Committee will give regard to existing appropriate. • The Committee may remove benefts that executive Directors receive or introduce other benefts if it is considered appropriate to do so. entitlements, the cost of the arrangements, market practice The Company may also pay the tax due on benefts if it considers that it is appropriate to do so. and the pension arrangements received elsewhere in the Group. • All-employee share schemes – executive Directors are eligible to participate in the Company’s all-employee share schemes on the same terms as other employees. • Relocation policy – where executive Directors are required to relocate to take up their role, the Committee may determine that they should receive appropriate relocation and ongoing expatriate benefts. The level of such benefts would be determined based on individual circumstances taking into account typical market practice.
Maximum • Base salaries are set at a level which the Committee • The defned beneft pension is provided through an Irish • The level of beneft provided will depend on the cost of providing individual items and the individual’s circumstances, and therefore the opportunity considers to be appropriate taking into consideration the Revenue approved retirement beneft scheme up until the Committee has not set a maximum level of benefts. factors outlined in the “operation” section. pension cap established in the Finance Act 2006 (see details • While there is no maximum base salary, normally increases on page 81). Accrued benefts for service to 31 December will be in line with the typical level of increase awarded to 2011 are based on pensionable salary and years of service th other employees in the Group but may be higher in certain as at that date (annual accrual of 1/60 ), with this tranche circumstances. These circumstances may include: being revalued annually at the Consumer Price Index subject to a 5% ceiling. For service subsequent to that date, a –– Where a new executive Director has been appointed at career-average revalued earnings system was introduced a lower salary, higher increases may be awarded over an with each year of service being subject to annual revaluation initial period as the executive Director gains in experience on the same basis as outlined above. Irish based executive and the salary is moved to what the Committee considers Directors receive a supplementary taxable non-pensionable is an appropriate positioning; cash allowance in lieu of pension benefts foregone as a –– Where there has been a signifcant increase in the scope result of the pension cap. These allowances are similar in or responsibility of an executive Director’s role or where value to the reduction in the Company’s liability represented an individual has been internally promoted, higher salary by the pension beneft foregone. Whilst there is no absolute increases may be awarded; and maximum to the quantum of these payments they are –– Where a larger increase is considered necessary to reflect calculated based on actuarial advice as the equivalent of the signifcant changes in market practice. reduction in the Company’s liability to each individual and spread over the term to retirement as annual compensation allowances.
• The US-based executive Director participates in a defned contribution retirement plan in respect of basic salary; and in addition he participates in an unfunded defned contribution SERP also in respect of basic salary, to which contributions are made at an agreed rate (20%), offset by contributions made to the other retirement plan.
Performance n/a n/a n/a measures
CRH 93 Directors’ Remuneration Report | continued
Policy table continued Table 53
Performance-related pay Element Annual Bonus Plan 2014 Performance Share Plan (PSP)
Purpose and • The Annual Performance-related Incentive Plan is designed to reward the creation of shareholder value through operational • The role of the PSP is to align the interest of key management across different regions and nationalities with those of shareholders through an link to strategy excellence and organic and acquisitive growth. The Plan incentivises executive Directors to deliver Group and individual goals interest in CRH shares and by incentivising the achievement of long-term performance goals. that support long-term value creation. • A Deferred Annual Performance-related Incentive Plan element links the value of executive Directors’ reward with the long-term performance of the CRH share price and aligns the interests of executive Directors with shareholders’ interests. • The ‘malus’ provision enables the Company to mitigate risk.
Operation • The Annual Performance-related Incentive Plan rewards executive Directors for meeting Company performance goals over a • Awards (in the form of conditional share awards or nil cost options) normally vest based on performance over a period of not less than three years. fnancial year of the Company. Targets are set annually by the Committee. Awards may also be settled in cash. • The annual bonus is paid in a mix of cash and shares (structured as a deferred share award). • Awards are normally subject to an additional holding period ending on the ffth anniversary of the grant date (or another date determined by the • For 2014: Committee). –– 75% of the bonus will be paid in cash; and • Dividend equivalents may be paid on PSP awards that vest in respect of dividends paid during the vesting period until the end of the holding period. These payments may be made in cash or shares and may assume reinvestment on a cumulative basis. –– 25% will be paid in shares. • For 2014 awards onwards, malus provisions (as set out in the rules of the PSP) will apply to awards. • In future years, the Committee may determine that a different balance between cash and shares is appropriate and adjust the relevant payments accordingly. • When assessing performance and determining bonus payouts the Committee also considers the underlying fnancial performance of the business to ensure it is consistent with the overall award level. • The deferred element of the bonus will be structured as a conditional share award or nil cost option and will normally vest after three years from grant (or a different period determined by the Committee). Deferred share awards may be settled in cash. • Dividend equivalents may be paid on deferred share awards in respect of dividends paid during the vesting period. These payments may be made in cash or shares and may assume the reinvestment of dividends on a cumulative basis. • For deferred awards granted from 2014, malus provisions apply. Cash bonus payments may be subject to clawback of the net amount paid for a period of three years from payment.
Maximum • Maximum annual opportunity of 150% of base salary. • The normal maximum award is 250% of salary per annum. In exceptional circumstances, the Committee may grant awards of up to 350% of opportunity base salary. • For 2014 the intended award levels are: –– Chief Executive – 250% of base salary –– Other executive Directors – 200% of base salary
Performance • The Annual Performance-related Incentive Plan is based on achieving clearly defned and stretching annual targets and • Awards to be granted in 2014 will vest based on a relative TSR return compared to key peers and cumulative cash flow performance. measures strategic goals set by the Committee each year based on key business priorities. • For threshold levels of performance 25% of the award vests with straight-line vesting to maximum. • The performance metrics used are a mix of fnancial targets including return goals and personal/strategic objectives generally • When determining vesting under the PSP the Committee reviews whether the TSR performance has been impacted by unusual events and including safety. Currently 80% of the bonus is based on fnancial performance measures. The Committee may vary the whether it, therefore, reflects the underlying performance of the business. In addition, the Committee will consider fnancial performance (including weightings of measures but no less than 50% shall be based on fnancial performance measures. EPS) in the period to ensure that TSR performance is consistent with the objectives of the performance criteria and was not distorted by • A portion of the bonus metrics for any Director may be linked to his/her specifc area of responsibility. extraneous factors. • Up to 50% of the maximum bonus will be paid for achieving target levels of performance. • The Committee may amend the performance conditions if an event occurs that causes it to consider that an amended performance condition would be more appropriate and would not be materially less diffcult to satisfy.
94 CRH Directors’ Remuneration Report | continued
Policy table continued Table 53
Performance-related pay Element Annual Bonus Plan 2014 Performance Share Plan (PSP)
Purpose and • The Annual Performance-related Incentive Plan is designed to reward the creation of shareholder value through operational • The role of the PSP is to align the interest of key management across different regions and nationalities with those of shareholders through an link to strategy excellence and organic and acquisitive growth. The Plan incentivises executive Directors to deliver Group and individual goals interest in CRH shares and by incentivising the achievement of long-term performance goals. that support long-term value creation. • A Deferred Annual Performance-related Incentive Plan element links the value of executive Directors’ reward with the long-term performance of the CRH share price and aligns the interests of executive Directors with shareholders’ interests. • The ‘malus’ provision enables the Company to mitigate risk.
Operation • The Annual Performance-related Incentive Plan rewards executive Directors for meeting Company performance goals over a • Awards (in the form of conditional share awards or nil cost options) normally vest based on performance over a period of not less than three years. fnancial year of the Company. Targets are set annually by the Committee. Awards may also be settled in cash. • The annual bonus is paid in a mix of cash and shares (structured as a deferred share award). • Awards are normally subject to an additional holding period ending on the ffth anniversary of the grant date (or another date determined by the • For 2014: Committee). –– 75% of the bonus will be paid in cash; and • Dividend equivalents may be paid on PSP awards that vest in respect of dividends paid during the vesting period until the end of the holding period. These payments may be made in cash or shares and may assume reinvestment on a cumulative basis. –– 25% will be paid in shares. • For 2014 awards onwards, malus provisions (as set out in the rules of the PSP) will apply to awards. • In future years, the Committee may determine that a different balance between cash and shares is appropriate and adjust the relevant payments accordingly. • When assessing performance and determining bonus payouts the Committee also considers the underlying fnancial performance of the business to ensure it is consistent with the overall award level. • The deferred element of the bonus will be structured as a conditional share award or nil cost option and will normally vest after three years from grant (or a different period determined by the Committee). Deferred share awards may be settled in cash. • Dividend equivalents may be paid on deferred share awards in respect of dividends paid during the vesting period. These payments may be made in cash or shares and may assume the reinvestment of dividends on a cumulative basis. • For deferred awards granted from 2014, malus provisions apply. Cash bonus payments may be subject to clawback of the net amount paid for a period of three years from payment.
Maximum • Maximum annual opportunity of 150% of base salary. • The normal maximum award is 250% of salary per annum. In exceptional circumstances, the Committee may grant awards of up to 350% of opportunity base salary. • For 2014 the intended award levels are: –– Chief Executive – 250% of base salary –– Other executive Directors – 200% of base salary
Performance • The Annual Performance-related Incentive Plan is based on achieving clearly defned and stretching annual targets and • Awards to be granted in 2014 will vest based on a relative TSR return compared to key peers and cumulative cash flow performance. measures strategic goals set by the Committee each year based on key business priorities. • For threshold levels of performance 25% of the award vests with straight-line vesting to maximum. • The performance metrics used are a mix of fnancial targets including return goals and personal/strategic objectives generally • When determining vesting under the PSP the Committee reviews whether the TSR performance has been impacted by unusual events and including safety. Currently 80% of the bonus is based on fnancial performance measures. The Committee may vary the whether it, therefore, reflects the underlying performance of the business. In addition, the Committee will considerf nancial performance (including weightings of measures but no less than 50% shall be based on fnancial performance measures. EPS) in the period to ensure that TSR performance is consistent with the objectives of the performance criteria and was not distorted by • A portion of the bonus metrics for any Director may be linked to his/her specifc area of responsibility. extraneous factors. • Up to 50% of the maximum bonus will be paid for achieving target levels of performance. • The Committee may amend the performance conditions if an event occurs that causes it to consider that an amended performance condition would be more appropriate and would not be materially less diffcult to satisfy.
CRH 95 Directors’ Report
The Directors submit their report and the albeit at a more moderate rate, while recovery programmes in the developed world, audited Consolidated Financial Statements for in the non-residential market is starting to governments’ ability to fund infrastructure the year ended 31 December 2014. gather pace. While the infrastructure market projects, consumer sentiment and weather remains broadly stable, there is upside conditions. Financial performance may also be Principal Activity, Results for the Year and potential due to the growing economy and negatively impacted by unfavourable swings in Review of Business increased state spending. fuel and other commodity/raw material prices. CRH is a diversified international building Failure of the Group to respond on a timely In Europe, the general market environment materials group which manufactures and basis and/or adequately to unfavourable events continues to normalise across our main distributes a diverse range of products beyond its control will adversely affect markets. The outlook for 2015 is somewhat servicing the breadth of construction needs, financial performance. mixed, particularly in the first half for which from the fundamentals of heavy materials and the 2014 comparatives reflect the benefit of Political and economic uncertainty: As an elements to construct the frame, through very benign weather conditions. In our international business, the Group operates in value-added exterior products that complete generally stable markets in Western Europe we many countries with differing, and in some the building envelope, to distribution channels expect to see some improvement in overall cases potentially fast-changing economic, which service construction fit-out and renewal. demand in 2015, particularly in residential social and political conditions. These The Group has over 1,000 subsidiary, joint activity. While the outlook in Ukraine remains conditions could include political unrest, venture and associate undertakings; the very uncertain, we anticipate that demand strikes, war and other forms of instability principal ones as at 31 December 2014 are will increase in Eastern Europe, driven including natural disasters, epidemics, listed on pages 162 to 166. primarily by an expected pick-up in the roads widespread transmission of diseases and The Group’s strategy, business model and programme in Poland towards the second half terrorist attacks. With particular reference to development activity are summarised in the of the year. developing markets, changes in these Strategy Review section on pages 7 to 15 and conditions, or in the governmental or With the improvements expected in market are deemed to be incorporated in this part of regulatory requirements in any of the countries conditions across our main geographies, the Directors’ Report. in which the Group operates, may adversely together with easing commodity prices, the affect the Group’s business, results of As set out in the Consolidated Income benefits of cost efficiencies and a favourable operations, financial condition or prospects Statement on page 104, the Group reported a foreign exchange translation effect, we expect thus leading to possible impairment of profit before tax for the year of €761 million. 2015 to be a further year of progress. financial performance and/or restrictions on Comprehensive reviews of the financial and Sustainability future growth opportunities. operating performance of the Group during 2014 are set out in the Business Performance As set out in the Strategy Review section on Commodity products and substitution: The Review on pages 22 to 49; key financial pages 7 to 15, the Group is fully committed to Group faces strong volume and price performance indicators are also set out in this operating ethically and responsibly in all competition across its product lines. In section. The treasury policy and objectives of aspects of its business relating to employees, addition, existing products may be replaced by the Group are set out in detail in note 21 to the customers, neighbours and other stakeholders. substitute products which the Group does not Consolidated Financial Statements. Details of CRH’s policies and performance produce or distribute. Against this backdrop, if relating to the Environment and Climate the Group fails to generate competitive Dividend Change, Health & Safety and Social & advantage through differentiation and An interim dividend of 18.5c (2013: 18.5c) per Community matters are set out in the innovation across the value chain (for example, share was paid in October 2014. The Board is separately published and independently through superior product quality, engendering recommending a final dividend of 44c per verified annual Sustainability Reports which customer loyalty or excellence in logistics), share. This gives a total dividend of 62.5c are available on the Group’s website at market share, and thus financial performance, for the year, maintained at last year’s level www. crh.com. The 2014 report will be may decline. (2013: 62.5c). The earnings per share for the available by mid-2015. Acquisition activity: Growth through year were 78.9c representing a cover of Principal Risks and Uncertainties acquisition is a key element of the Group’s 1.26 times the proposed dividend for 2014. strategy. The Group may not be able to Under Irish Company law (Regulation 5(4)(c) It is proposed to pay the final dividend on continue to grow as contemplated in its (ii) of the Transparency (Directive 2004/109/ 12 May 2015 to shareholders registered at the business plan if it is unable to identify EC) Regulations 2007), the Group is required to close of business on 6 March 2015. Subject to attractive targets (including potential new give a description of the principal risks and the approval of resolutions 2 and 12 at the platforms for growth), execute full and proper uncertainties which it faces. These risks and 2015 Annual General Meeting, shareholders due diligence, raise funds on acceptable terms, uncertainties reflect the international scope of are being offered a scrip dividend alternative. complete such acquisition transactions, the Group’s operations and the Group’s integrate the operations of the acquired 2015 Outlook decentralised structure. businesses and realise anticipated levels of In the United States, the pace of GDP growth Strategic Risks and Uncertainties profitability and cash flows. The Group may be is expected to pick-up in 2015 and we believe liable for the past acts, omissions or liabilities Industry cyclicality: The level of construction that the fundamentals are in place for of companies or businesses acquired, which activity in local and national markets is continued positive momentum in the may either be unforeseen or greater than inherently cyclical being influenced by a wide economy. Demand in the residential anticipated at the time of the relevant variety of factors including global and national construction market continues to expand, acquisition. On 1 February 2015, CRH economic circumstances, ongoing austerity
96 CRH Corporate communications: As a publicly Regulatory Information listed company, the Group undertakes regular communication with its stakeholders. Given This table contains information which is required to be provided for regulatory purposes. that these communications may contain forward looking statements, which by their nature involve uncertainty, actual results and 2009 Corporate Governance Regulations: developments may differ from those For the purpose of Statutory Instrument 450/2009 European Communities (Directive 2006/46/ communicated due to a variety of external and EC) Regulations 2009, as amended by Statutory Instrument 83/2010 European Communities internal factors giving rise to reputational risk. (Directive 2006/46/EC) (Amendment) Regulations 2010, the Corporate Governance report on pages 54 to 71 is deemed to be incorporated in this part of the Directors’ Report. Details of the Cyber and information technology: As a result Company’s Employee Share Schemes and capital structure can be found in notes 7 and 28 to of the proliferation of information technology the Financial Statements on pages 121 to 123 and 147 and 148 respectively. in the world today, the Group is dependent on the employment of advanced information 2006 Takeover Regulations: systems and is exposed to risks of failure in the For the purpose of Regulation 21 of Statutory Instrument 255/2006 European Communities operation of these systems. Furthermore, the (Takeover Bids (Directive 2004/25/EC)) Regulations 2006, the rules relating to the appointment Group is exposed to security threats to its and replacement of Directors are summarised in the section on Board of Directors in this Report digital infrastructure through cyber crime on page 98 and in the following sections of the Corporate Governance Report: Membership of which might lead to interference with the Board on page 56, Directors’ retirement and re-election on page 58 and Memorandum and production processes, manipulation of Articles of Association on page 71. The Chief Executive has entered into a service contract, the financial data, the theft of private data or principal terms of which are summarised on page 91 of the Directors’ Remuneration Report and misrepresentation of information via digital are deemed to be incorporated in this part of the Directors’ Report. The Company’s media. In addition to potential irretrievability Memorandum and Articles of Association, which are available on the CRH website, are also or corruption of critical data, the Group could deemed to be incorporated in this part of the Directors’ Report. The Group has certain banking suffer reputational losses and incur significant facilities and bond issues outstanding which may require repayment in the event that a change financial costs in remediation. Such attacks are in control occurs with respect to the Company. In addition, the Company’s share option by their nature technologically sophisticated schemes and Performance Share Plan contain change of control provisions which can allow for and may be difficult to detect and defend in a the acceleration of the exercisability of share options and the vesting of share awards in the timely fashion. event that a change of control occurs with respect to the Company. Sustainability: The Group is subject to stringent 2007 Transparency Regulations: and evolving laws, regulations, standards and best practices in the area of sustainability For the purpose of Statutory Instrument 277/2007 Transparency (Directive 2004/109/EC) (comprising corporate governance, Regulations 2007, the Sustainability Report as published on the CRH website is deemed to be environmental management and climate incorporated in this part of the Directors’ Report, together with the following sections of this change (specifically capping of emissions), annual report: the Chairman’s Introduction on pages 2 and 3, the Strategy Review section on health and safety management and social pages 7 to 15, the Business Performance Review on pages 22 to 49, the details of earnings per performance) which may give rise to increased Ordinary Share in note 12 to the Consolidated Financial Statements, details of derivative ongoing remediation and/or other compliance financial instruments in note 24, the details of the re-issue of Treasury Shares in note 28 and costs and may adversely affect the Group’s details of employees in note 5. business, results of operations, financial condition and/or prospects. Laws and regulations: The Group is subject to announced that it had made a binding for proactive relationship management, which many local and international laws and irrevocable offer to acquire certain assets being may restrict the Group’s ability to generate regulations, including those relating to disposed of by Lafarge S.A. and Holcim adequate returns and to develop and grow competition law, corruption and fraud, across Limited in advance of their intended merger for these businesses. many jurisdictions of operation and is exposed an enterprise value of €6.5 billion. As noted by Human resources: Existing processes to recruit, to changes in those laws and regulations and to the Chairman in his review on pages 2 and 3 develop and retain talented individuals and the outcome of any investigations conducted by the transaction is subject to CRH obtaining promote their mobility may be inadequate thus governmental, international and other shareholder approval and certain other giving rise to employee/management attrition regulatory authorities, which may result in the conditions. There can be no guarantee that these and difficulties in succession planning and imposition of fines and/or sanctions for conditions precedent will be met, these approvals potentially impeding the continued realisation non-compliance, and may potentially inflict granted or that the proposed acquisition will be of the core strategy of performance and growth. reputational damage. completed as proposed or at all. In addition, the Group is exposed to various Financial and Reporting Risks and Joint ventures and associates: The Group does risks associated with collective representation Uncertainties not have a controlling interest in certain of the of employees in certain jurisdictions. These businesses (i.e. joint ventures and associates) in risks could include strikes and increased wage Financial instruments (interest rate and which it has invested and may invest. The demands with possible reputational leverage, foreign currency, counterparty, credit absence of a controlling interest gives rise to consequences. ratings and liquidity): The Group uses financial increased governance complexity and a need instruments throughout its businesses giving
CRH 97 Directors’ Report | continued
rise to interest rate and leverage, foreign more of its insurance counterparties, the Group shareholders in relation to this proposal currency, counterparty, credit rating and could be impacted by losses where recovery including the notice of the EGM was published liquidity risks. A significant portion of the cash from such counterparties is not possible. by the Company on 20 February 2015. generated by the Group from operational Shareholders should refer to this circular for Foreign currency translation: The Group’s activity is currently dedicated to the payment further details. activities are conducted primarily in the local of principal and interest on indebtedness. In currency of the country of operation resulting Directors’ Remuneration Report addition, the Group has entered into certain in low levels of foreign currency transactional financing agreements containing restrictive Resolution 3 to be proposed at the 2015 Annual risk. The principal foreign exchange risks to covenants requiring it to maintain a certain General Meeting deals with the 2014 Directors’ which the Consolidated Financial Statements minimum interest coverage ratio and a certain Remuneration Report (excluding the summary are exposed pertain to adverse movements in minimum net worth. A downgrade of the of the Remuneration Policy), as set out on reported results when translated into euro Group’s credit ratings may give rise to increases pages 72 to 89, which the Board has again (which is the Group’s reporting currency) in funding costs in respect of future debt and decided to present to shareholders for the together with declines in the euro value of net may impair the Group’s ability to raise funds purposes of a non-binding advisory vote. This investments which are denominated in a wide on acceptable terms. In addition, against the is in line with international best practice. basket of currencies other than the euro. backdrop of heightened uncertainties in the Board of Directors eurozone, insolvency of the financial Goodwill impairment: Significant under- institutions with which the Group conducts performance in any of the Group’s major Mr. H. Th. Rottinghuis was appointed to the business (or a downgrade in their credit cash-generating units or the divestment of Board on 18 February 2014. ratings) may lead to losses in derivative assets businesses in the future may give rise to a Mr. J.M. de Jong retired from the Board on and cash and cash equivalents balances or material write-down of goodwill, which would 7 May 2014. render it more difficult either to utilise existing have a substantial impact on the Group’s debt capacity or otherwise obtain financing for income and equity. Mr. P.J. Kennedy was appointed to the Board operations. with effect from 1 January 2015. Inspections by Public Company Accounting Defined benefit pension schemes and related Oversight Board (“PCAOB”): Our auditors, like Ms. L. Riches has been appointed to the Board obligations: The Group operates a number of other independent registered public accounting with effect from 1 March 2015. defined benefit pension schemes and related firms operating in Ireland and a number of Mr. J.W. Kennedy and Mr. D.N. O’Connor will obligations (for example, termination other European countries, are not currently retire from the Board at the conclusion of the indemnities and jubilee/long-term service permitted to be subject to inspection by the Annual General Meeting to be held on 7 May benefits, which are accounted for as defined PCAOB, and as such, investors are deprived of 2015. benefit) in certain of its operating jurisdictions. the benefits of PCAOB inspections. Under the Company’s Articles of Association, The assets and liabilities of defined benefit The principal financial and reporting risks and co-opted Directors are required to submit pension schemes may exhibit significant uncertainties are subject to further disclosure themselves to shareholders for election at the period-on-period volatility attributable in the notes to the Consolidated Financial Annual General Meeting following their primarily to asset values, changes in bond Statements and the accompanying accounting appointment and all the Directors are required yields/discount rates and anticipated longevity. policies. to submit themselves for re-election at intervals In addition to the contributions required for the As demonstrated by CRH’s proven record of of not more than three years. However, in ongoing service of participating employees, superior performance, the Group’s management accordance with the provisions contained in significant cash contributions may be required team has substantial and long experience in the UK Corporate Governance Code, the Board to remediate deficits applicable to past service. dealing with the impact of these risks. The has decided that all Directors eligible for In addition, fluctuations in the accounting mechanisms through which the principal risks re-election should retire at each Annual surplus/deficit may adversely impact credit and uncertainties are managed are addressed in General Meeting and offer themselves for metrics thus harming the Group’s ability to the Risk Management and Internal Control re-election. raise funds. section of the Corporate Governance Report. Auditors Adequacy of insurance arrangements and Greenhouse Gas Emissions related counterparty exposures: The building Section 160(2) of the Companies Act, 1963 materials sector is subject to a wide range of Disclosures relating to the Group’s greenhouse provides that the auditor of an Irish company operating risks and hazards, not all of which gas emissions are contained in the Measuring shall be automatically re-appointed at a can be covered, adequately or at all, by Performance section on page 14. company’s annual general meeting unless the insurance; these risks and hazards would auditor has given notice in writing of his Proposed Acquisition of Certain Assets Being include climatic conditions such as floods and unwillingness to be re-appointed or a Disposed of by Lafarge S.A. and Holcim hurricanes/cyclones, seismic activity, technical resolution has been passed at that meeting Limited failures, interruptions to power supplies, appointing someone else or providing industrial accidents and disputes, The Directors’ have convened an Extraordinary expressly that the incumbent auditor shall not environmental hazards, fire and crime. In its General Meeting (“EGM”) to be held on 19 be re-appointed. The Auditors, Ernst & Young, worldwide insurance programme, the Group March 2015 for the purposes of approving the Chartered Accountants, are willing to continue provides coverage for its operations at a level acquisition of certain assets being disposed of in office. Notwithstanding the provisions of believed to be commensurate with the by Lafarge S.A. and Holcim Limited in advance Irish company law, the Board has decided to associated risks. In the event of failure of one or of their intended merger. A circular to provide shareholders with an opportunity to
98 CRH Authority to Allot Shares Location of information required pursuant to Listing Rule 9.8.4C The Directors require the authority of the shareholders to allot any unissued share capital Listing Rule Information to be included*: Publication of unaudited financial information** of the Company. Accordingly, an ordinary LR 9.8.4 (2) Disclosure resolution will be proposed at the 2015 Annual The circular to shareholders published on 20 February 2015 contained the General Meeting to grant authority for that following statement:- purpose. The total number of shares which the Directors may issue under this authority will be “On 11 November 2014, CRH issued an Interim Management Statement, which limited to a number which is equivalent to contained the following statement (extracted without material adjustment) on 33% of the issued share capital of the Company CRH’s current trading: as at 25 February 2015. “Assuming normal weather patterns for the remainder of the year and a US dollar/ 1 No issue of shares will be made which could euro exchange rate of 1.33 (2013: 1.3281), we expect EBITDA for the fourth effectively alter control of the Company quarter to be broadly similar to the strong performance in the final quarter of 2013. without prior approval of the Company in Against this backdrop, we reiterate our expectation for second-half EBITDA to be General Meeting. The Directors have no present somewhat ahead of last year (H2 2013: €1.08 billion), resulting in expected full intention of making any issue of shares. This year EBITDA growth of c.10% in 2014 (2013: €1.475 billion).” authority will expire on the earlier of the date 1 Average exchange rate based on year-to-date US$/euro rate of 1.3455 and a of the Annual General Meeting in 2016 or projected rate of 1.2493 to year-end. 6 August 2016. “Since that date, the CRH Group’s trading performance continues to be in line with Disapplication of Pre-emption Rights the Board’s expectations and we expect EBITDA for the full year ended 31 December 2014 to be not less than €1.625 billion with full year revenues of A special resolution will be proposed at the €18.9 billion. We expect year-end net debt to be approximately €2.5 billion (2013: 2015 Annual General Meeting to renew the €3.0 billion), with a net debt/EBITDA ratio of approximately 1.5 times…” Directors’ authority to disapply statutory pre-emption rights in relation to allotments of The actual EBITDA outturn for the full year ended 31 December 2014 was €1.641 shares for cash. In respect of allotments other billion. See page 116 to the Consolidated Financial Statements for more details. than for rights issues to ordinary shareholders and employees’ share schemes, the total Listing Rule Information to be included*: Waivers of dividends number of shares which the Directors may LR 9.8.4 (12) Disclosure issue under this authority will be limited to a and (13) number which is equivalent to 5% of the The Trustees of the Employee Benefit Trust, have elected to waive dividends in issued share capital of the Company as at respect of certain holdings of CRH shares. See pages 121 to 123 to the 25 February 2015. This authority will expire on Consolidated Financial Statements. the earlier of the date of the Annual General Meeting in 2016 or 6 August 2016. * No information is required to be disclosed in respect of Listing Rules 9.8.4 (1), (3), (4), (5), (6), (7), (8), (9), The Directors intend to follow the Pre-Emption (10), (11) and (14). Group’s Statement of Principles in that ** Required by Listing Rule 9.2.18. allotments of shares for cash and the re-issue of Treasury Shares on a non pre-emptive basis, other than for rights issues to ordinary have a say on the continuance in office of Ernst Income Shares, a resolution to increase the shareholders and employees’ share schemes, & Young and a non-binding resolution has been aggregate of the authorised Ordinary/Income will not exceed 7.5% of the issued Ordinary/ included on the agenda for the 2015 Annual share capital from €340,000,000 to Income share capital within a rolling three year General Meeting for this purpose. €425,000,000 will be proposed at the Annual period without prior consultation with its General Meeting. The increase in the shareholders. As required under Irish law, the Annual authorised Ordinary/Income share capital is General Meeting agenda also includes a Transactions in Own Shares necessary to ensure there is sufficient share resolution authorising the Directors to fix the capital available to the Company to operate the During 2014, 2,175,649 (2013: 1,423,602) remuneration of the Auditors. approved Employee Share Schemes, the Scrip Treasury Shares were re-issued under the Increase in Authorised Share Capital Dividend Scheme and to maintain the Group’s Share Schemes. As at 25 February authorised but unissued share capital at a 2015, 3,735,479 shares were held as Treasury On 5 February 2015, CRH allotted 74,039,915 prudent level. Shares, equivalent to 0.45% of the Ordinary new Ordinary Shares and 74,039,915 new Shares in issue (excluding Treasury Shares). Income Shares, representing approximately The proposed increase in the authorised 9.99% of CRH’s issued Ordinary/Income share Ordinary/Income share capital is 25% and A special resolution will be proposed at the capital in connection with a share placing unissued Ordinary/Income Shares will 2015 Annual General Meeting to renew the announced on 2 February 2015. As the placing represent 34.5% of the authorised Ordinary/ authority of the Company, or any of its reduced the number of unissued Ordinary/ Income share capital. subsidiaries, to purchase up to 10% of the
CRH 99 Directors’ Report | continued
Company’s Ordinary/Income Shares in issue at Amendments to Memorandum and Articles of which the applicable accounting standards are the date of the Annual General Meeting. If Association and Annual General Meeting those which are generally accepted in the approved, the minimum price which may be Republic of Ireland. A circular to shareholders, which will contain paid for shares purchased by the Company the Notice of Meeting and proposed changes to The Directors have elected to prepare the shall not be less than the nominal value of the the Company’s Memorandum and Articles of Parent Company’s Financial Statements in shares and the maximum price will be 105% of Association to be considered at the 2015 Annual accordance with Generally Accepted the higher of the last independent trade in the General Meeting, will be posted to shareholders Accounting Practice in Ireland (Irish GAAP) Company’s shares (or current independent bid, on 30 March 2015. comprising the financial reporting standards if higher) and the average market price of such issued by the Accounting Standards Board shares over the preceding five days. A special Statement of Directors’ Responsibilities and published by the Institute of Chartered resolution will also be proposed for the The Directors as at the date of this report, whose Accountants in Ireland, together with the purpose of renewing the authority to set the names are listed on pages 51 to 53, are Companies Acts, 1963 to 2013. maximum and minimum prices at which responsible for preparing the Annual Report and Treasury Shares (effectively shares purchased The Directors are responsible for keeping Financial Statements in accordance with and not cancelled) may be re-issued off-market proper books of account which disclose with applicable laws and regulations. by the Company. If granted, both of these reasonable accuracy at any time the financial authorities will expire on the earlier of the date Irish Company law requires the Directors to position of the Parent Company and which of the Annual General Meeting in 2016 or prepare financial statements for each financial enable them to ensure that the Consolidated 6 August 2016. year which give a true and fair view of the Financial Statements are prepared in assets, liabilities, financial position of the Parent accordance with applicable International As at 25 February 2015, options to subscribe for Company and of the Group and of the profit or Financial Reporting Standards as adopted by a total of 16,335,763 Ordinary/Income Shares loss of the Group taken as a whole for that the European Union and comply with the are outstanding, representing 2.0% of the period (Consolidated Financial Statements). provisions of the Companies Acts, 1963 to issued Ordinary/lncome share capital 2013 and Article 4 of the IAS Regulation. (excluding Treasury Shares). If the authority to In preparing the Consolidated Financial purchase Ordinary/Income Shares was used in Statements, the Directors are required to: The Directors have appointed appropriate full, the options would represent 2.22% of the accounting personnel, including a remaining shares in issue. –– select suitable accounting policies and then professionally qualified Finance Director, in apply them consistently; order to ensure that those requirements are The Directors do not have any current intention –– make judgements and estimates that are met. The books and accounting records of the of exercising the power to purchase the reasonable and prudent; Company are maintained at the principal Company’s own shares and will only do so if executive offices located at Belgard Castle, they consider it to be in the best interests of the –– comply with applicable International Clondalkin, Dublin 22. Company and its shareholders. Financial Reporting Standards as adopted by the European Union, subject to any material The Directors are also responsible for Authority to Offer Scrip Dividends departures disclosed and explained in the safeguarding the assets of the Group and An ordinary resolution will be proposed at the Financial Statements; and hence for taking reasonable steps for the 2015 Annual General Meeting to renew the –– prepare the Financial Statements on the going prevention and detection of fraud and other Directors’ authority to make scrip dividend concern basis unless it is inappropriate to irregularities. offers. This authority will apply to dividends presume that the Group will continue in Each of the Directors as at the date of this declared or to be paid commencing on 7 May business. report, whose names are listed on pages 51 to 2015. Unless renewed at the Annual General The Directors are required by the 53, confirms that they consider that the Meeting in 2016, this authority shall expire at Transparency (Directive 2004/109/EC) Annual Report and Financial Statements, the close of business on 6 August 2016. Regulations 2007 and the Transparency Rules taken as a whole, is fair, balanced and Notice Period for Extraordinary General of the Central Bank of Ireland to include a understandable and provides the information Meetings management report containing a fair review of necessary for shareholders to assess the the development and performance of the Company’s performance, business model and Resolution 11 to be proposed at the Annual business and the position of the Parent strategy. General Meeting is a special resolution, which Company and of the Group taken as a whole seeks shareholders’ approval to permit the and a description of the principal risks and Company to convene an extraordinary general uncertainties facing the Group. On behalf of the Board, meeting on 14 clear days’ notice where the N. Hartery, A. Manifold purpose of the meeting is to consider an The Directors confirm that to the best of their Directors ordinary resolution. If approved, it is the knowledge they have complied with the above intention of the Directors only to utilise this requirements in preparing the 2014 Annual 25 February 2015 authority where they consider it to be in the best Report and Consolidated Financial interests of the Company and its shareholders. Statements. The considerations set out above In addition, the Directors are cognisant of the for the Group are also required to be addressed UK Corporate Governance Code requirement for by the Directors in preparing the financial general meetings to be convened at 14 business statements of the Parent Company (which are days’ notice. set out on pages 154 to 157, in respect of
100 CRH Independent Auditor’s Report to the members of CRH plc
What we have audited in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications We have audited the financial statements of CRH plc for the year ended for our Report. 31 December 2014 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Our application of materiality Company Balance Sheets, the Consolidated Statement of Changes in Equity, We define materiality as the magnitude of misstatement in the financial the Consolidated Statement of Cash Flows, the Accounting Policies, the statements that makes it probable that the economic decisions of a related notes 1 to 34 (Group) and the related notes 1 to 13 (Company). The reasonably knowledgeable person would be changed or influenced. We use financial reporting framework that has been applied in the preparation of materiality both in planning the scope of our audit work and performing the Group Financial Statements is Irish law and International Financial our audit and in evaluating the effect of misstatements on our audit and on Reporting Standards (IFRSs) as adopted by the European Union. The the financial statements. financial reporting framework that has been applied in the preparation of the Company Financial Statements is Irish law and accounting standards When establishing our overall audit strategy, we determined a magnitude issued by the Financial Reporting Council and promulgated by the Institute of uncorrected misstatements that we judged would be material for the of Chartered Accountants in Ireland (Generally Accepted Accounting financial statements as a whole. We determined materiality for the Group Practice in Ireland). to be €36 million, which is approximately 5% of pre-tax profit. In 2013, we determined materiality for the Group to be €25 million which was This Report is made solely to the Company’s members, as a body, in approximately 5% of adjusted pre-tax profit. We used adjusted pre-tax accordance with Section 193 of the Companies Act, 1990. Our audit work profit in 2013 which excluded the impairment of goodwill and the non- has been undertaken so that we might state to the Company’s members recurring impairment of property, plant and equipment and financial those matters we are required to state to them in an auditor’s report and for assets arising from a portfolio review as they do not reflect the underlying no other purpose. To the fullest extent permitted by law, we do not accept trading performance of the Group thereby avoiding inappropriate or assume responsibility to anyone other than the Company and the variations in our materiality as a result of significant non-recurring items. Company’s members as a body, for our audit work, for this Report, or for the Our materiality calculation provided a basis for determining the nature, opinions we have formed. timing and extent of risk assessment procedures, identifying and assessing Opinion on financial statements the risk of material misstatement and determining the nature, timing and extent of further audit procedures. In our opinion: On the basis of our risk assessments, together with our assessment of the • the Group financial statements give a true and fair view, in accordance Group’s overall control environment, our judgement was that overall with IFRSs as adopted by the European Union, of the state of the Group’s performance materiality (i.e. our tolerance for misstatement in an individual affairs as at 31 December 2014 and of its profit for the year then ended; account or balance) for the Group should be 50% of planning materiality, • the Company Balance Sheet gives a true and fair view in accordance with namely €18 million (2013: €12.5 million). Our objective in adopting this Generally Accepted Accounting Practice in Ireland of the state of the approach was to ensure that total uncorrected and undetected audit Company’s affairs as at 31 December 2014; and differences in all accounts did not exceed our planning materiality level. • the financial statements have been properly prepared in accordance with We agreed with the Audit Committee that we would report to them all audit the requirements of the Companies Acts 1963 to 2013 and, as regards the differences in excess of €1.8 million (2013: €1.25 million), as well as Group financial statements, Article 4 of the IAS Regulation. differences below that threshold that in our view warranted reporting on qualitative grounds. Respective responsibilities of directors and auditors We evaluated any uncorrected misstatements against both the quantitative As explained more fully in the Statement of Directors’ Responsibilities set measures of materiality discussed above and in light of other relevant out on page 100 the Directors are responsible for the preparation of the qualitative considerations. financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial An overview of the scope of our audit statements in accordance with Irish law and International Standards on The overall scope of our audit has been assessed in line with the principles as Auditing (UK and Ireland). Those standards require us to comply with the described above in ‘scope of the audit of the financial statements’. In Auditing Practices Board’s Ethical Standards for Auditors. determining those components in the Group at which we perform audit Scope of the audit of the financial statements procedures, we utilised size and risk criteria in accordance with International Standards on Auditing (UK and Ireland). Following this assessment we An audit involves obtaining evidence about the amounts and disclosures selected 80 (2013: 77) components which represent the principal business in the financial statements sufficient to give reasonable assurance that the units within the Group’s six business segments. 26 (2013: 33) of these financial statements are free from material misstatement, whether caused components were subject to a full audit, whilst another 54 (2013: 44) were by fraud or error. This includes an assessment of: whether the accounting subject to a partial audit where the extent of the audit work was based on our policies are appropriate to the Group and the Company’s circumstances assessment of the risks of material misstatement and the materiality of the and have been consistently applied and adequately disclosed; the Group’s business operations at those locations and focuses on specific reasonableness of significant accounting estimates made by the Directors; accounts. For the remaining components, we performed other procedures to and the overall presentation of the financial statements. In addition, we identify if there were any remaining significant risks of material misstatement read all the financial and non-financial information in the Annual Report in the Group financial statements in respect of those components. to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect Audit work at each component is undertaken based on a percentage of our based on, or materially inconsistent with, the knowledge acquired by us total performance materiality. The performance materiality set for each
CRH 101 Independent Auditor’s Report | continued
component is based on the relative size of the component and our view of and added a new risk concerning the accounting and disclosure the risk of misstatement at that component. In the current year the range of requirements arising from the application of the held for sale requirements performance materiality allocated to components was €3.6 million to contained within IFRS 5 – Non-current Assets Held for Sale and €11 million (2013: €2.5 million and €8.5 million). Discontinued Operations, as the businesses identified for disposal in the portfolio review advance towards disposal. We issued detailed instructions to each component auditor in scope for the Group audit, with specific audit requirements and requests across key areas. We consider that the following areas present the greatest risk of material The Group audit team continued to perform a programme of site visits at key misstatement in the financial statements and consequently have had the locations across the Group which included a review of key working papers greatest impact on our audit strategy, the allocation of resources and the supporting conclusions on significant risk areas. In addition to site visits, the efforts of the engagement team, including the more senior members of Group audit team participated in divisional planning and closing meetings the team. and the component auditors’ discussion of the risks of fraud and error. Based on our walkthrough and control testing performed, we believe the Our assessment of risks of material misstatement controls over the areas identified below are designed and operate effectively.
In 2013 we identified a risk arising from the ‘accounting and disclosure The Audit Committee’s report on those matters which they considered to implications of the portfolio review’, whereby management had identified a be significant issues in relation to the financial statements is set out on number of business units for disposal. For 2014, we have removed this risk page 61.
Principal risk area and rationale
Assessment of the carrying value of goodwill Audit response
The impairment review of goodwill, with a carrying value of Our specialist valuations team performed an independent assessment against external market data of €4.0bn, is considered to be a risk area due to the size of the key inputs used by management in calculating appropriate discount rates, principally risk free rates, balance as well as the fact that it involves significant country risk premium and inflation rates. judgement by management. Judgemental aspects include We reviewed and challenged the determination of the Group’s 20 Cash Generating Units (‘CGUs’) and assumptions of future profitability, revenue growth, margins flexed our audit approach depending on our risk assessment and the level of headroom in each CGU. and forecast cash flows, and the selection of appropriate For all CGUs selected for detailed testing, we critically assessed all key assumptions in the models by discount rates. challenging management’s detailed calculations and benchmarking growth forecasts to external economic forecasts and construction activity measures.
We challenged management’s sensitivity analyses and performed our own sensitivity calculations to assess the level of headroom in place based on reasonably expected movements in such assumptions.
We considered the adequacy of management’s disclosures in respect of impairment testing and whether the sensitivity disclosures appropriately communicate the underlying sensitivities.
Assessment of the carrying value of property, plant and Audit response equipment and financial assets In respect of the discount rate, we performed similar procedures to those noted above for goodwill. The impairment review of property, plant and equipment and The Group operates a variety of business models and as a result the identification of CGUs for testing is financial assets, with a carrying value of €7.7bn and €1.4bn based on these business models and management’s assessment of impairment indicators. respectively, is considered to be a risk area due to the size of the balances as well as their judgemental nature, similar to Similar audit procedures to those noted under goodwill above are performed in respect of the key that noted in the assessment of the carrying value of assumptions underpinning the impairment models. goodwill above.
Accounting and disclosure requirements arising from the Audit response application of the held for sale requirements contained Throughout the year and in the subsequent period up to the date of approval of the financial within IFRS 5 statements, we have regular contact with management who inform us on the status of the various In 2013 management made a decision to divest of a number entities subject to disposal. We also review Board minutes where proposals in respect of businesses of business units across its operations. None of these moving to disposal are presented. businesses met the ‘held for sale’ criteria at 31 December We challenged management’s assessment by applying professional scepticism to the judgements made 2013. The status of the businesses identified for disposal has by management in concluding whether all relevant criteria had been met in order to classify businesses evolved during the year with some having been disposed, as held for sale in accordance with IFRS 5. We also tested whether depreciation of non-current assets others meeting the held for sale criteria and the remainder and the accounting for the share of results of equity method investees ceased at the date of IFRS 5 continuing to be assessed for impairment. classification and that foreign exchange recycling was calculated where relevant. We considered the adequacy of the disclosures in the financial statements in respect of held for sale assets (note 4).
102 CRH Principal risk area and rationale | continued
Revenue recognition for construction contracts Audit response
There are significant accounting judgements which include determining the We performed substantial audit procedures which included a review of a sample of stage of completion, the timing of revenue recognition and the calculation contracts, a review for change orders, a retrospective review of estimated profit and under the percentage-of-completion method, in applying the Group’s revenue costs to complete and enquired of key personnel regarding adjustments for job recognition policies to long-term contracts entered into by the Group. The costing and potential job losses. We performed testing procedures over routine sales majority of the Group’s construction contracts have a maturity within one transactions. year and most are completed prior to the year-end, reflecting seasonality.
Total revenue for construction contracts was €3.4bn which represents 17.7% of the Group’s revenue in 2014.
There is significant seasonality to when services are rendered under these construction contracts, with the majority of the work performed in the summer months.
Accounting for acquisitions and disposals Audit response
During 2014, the Group completed 21 acquisitions at a cost of €0.2bn and Our specialist valuations team challenge purchase price allocation adjustments, realised total disposal proceeds of €0.2bn across 16 disposals. deferred consideration and the identification and valuation of acquired intangible assets as all elements involve significant judgement by management. On 1 February 2015, the Group entered into a binding commitment to acquire certain assets from Lafarge and Holcim for an enterprise value of €6.5bn. In considering the accounting for disposals we consider various areas including identification of consideration, net assets, disposal costs and foreign exchange Acquisitions and disposals continue to be a significant focus area for the reserve recycling. Group and an area where we allocate significant resources in directing the efforts of the engagement team. We also considered the adequacy of the related disclosures (note 4 and note 30).
Matters on which we are required to report by the Companies Acts 1963 • is otherwise misleading. to 2013 In particular, we are required to consider whether we have identified any • We have obtained all the information and explanations which we inconsistencies between our knowledge acquired during the audit and the consider necessary for the purposes of our audit. Directors’ Statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses • In our opinion proper books of account have been kept by the Company. those matters that we communicated to the Audit Committee which we • The Company Balance Sheet is in agreement with the books of account. consider should have been disclosed. • In our opinion the information given in the Directors’ Report is consistent Under the Companies Acts 1963 to 2013 we are required to report to you if, with the financial statements and the description in the Corporate in our opinion, the disclosures of Directors’ remuneration and transactions Governance Report of the main features of the internal control and risk specified by law are not made. management systems in relation to the process for preparing the Group Under the Listing Rules we are required to review: Financial Statements is consistent with the Group Financial Statements. • the Directors’ Statement, set out on page 100, in relation to going concern; • The net assets of the Company, as stated in the Company Balance Sheet are more than half of the amount of its called-up share capital and, in our • the part of the Corporate Governance Report relating to the Company’s opinion, on that basis there did not exist at 31 December 2014 a financial compliance with the nine provisions of the UK Corporate Governance situation which under Section 40 (1) of the Companies (Amendment) Code specified for our review; and Act, 1983 would require the convening of an extraordinary general • certain elements of the report to shareholders by the Board on Directors’ meeting of the Company. remuneration. Matters on which we are required to report by exception
We have nothing to report in respect of the following: Breffni Maguire Under the ISAs (UK and Ireland), we are required to report to you if, in our for and on behalf of Ernst & Young opinion, information in the Annual Report is: Dublin
• materially inconsistent with the information in the audited financial 25 February 2015 statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
CRH 103 Consolidated Income Statement for the financial year ended 31 December 2014 2014 2013 €m €m Notes
1 Revenue 18,912 18,031 2 Cost of sales (13,427) (13,153) Gross profit 5,485 4,878 2 Operating costs (4,568) (4,778) 1,3,5,6 Group operating profit 917 100 1,4 Profit on disposals 77 26 Profit before finance costs 994 126 8 Finance costs (254) (262) 8 Finance income 8 13 8 Other financial expense (42) (48) 9 Share of equity accounted investments' profit/(loss) 55 (44) 1 Profit/(loss) before tax 761 (215) 10 Income tax expense (177) (80) Group profit/(loss) for the financial year 584 (295)
Profit/(loss) attributable to: Equity holders of the Company 582 (296) Non-controlling interests 2 1 Group profit/(loss) for the financial year 584 (295)
12 Basic earnings/(loss) per Ordinary Share 78.9c (40.6c)
12 Diluted earnings/(loss) per Ordinary Share 78.8c (40.6c)
All of the results relate to continuing operations.
Consolidated Statement of Comprehensive Income for the financial year ended 31 December 2014 2014 2013 €m €m Notes
Group profit/(loss) for the financial year 584 (295)
Other comprehensive income Items that may be reclassified to profit or loss in subsequent years: Currency translation effects 599 (373) 24 Losses relating to cash flow hedges (6) (2) 593 (375) Items that will not be reclassified to profit or loss in subsequent years: 27 Remeasurement of retirement benefit obligations (414) 162 10 Tax on items recognised directly within other comprehensive income 69 (43) (345) 119
Total other comprehensive income for the financial year 248 (256)
Total comprehensive income for the financial year 832 (551)
Attributable to: Equity holders of the Company 830 (552) Non-controlling interests 2 1 Total comprehensive income for the financial year 832 (551)
N. Hartery, A. Manifold, Directors
104 CRH Consolidated Balance Sheet as at 31 December 2014 2014 2013 €m €m Notes
ASSETS Non-current assets 13 Property, plant and equipment 7,422 7,539 14 Intangible assets 4,173 3,911 15 Investments accounted for using the equity method 1,329 1,340 15 Other financial assets 23 23 17 Other receivables 85 93 24 Derivative financial instruments 87 63 26 Deferred income tax assets 171 107 Total non-current assets 13,290 13,076
Current assets 16 Inventories 2,260 2,254 17 Trade and other receivables 2,644 2,516 Current income tax recoverable 15 26 24 Derivative financial instruments 15 17 22 Cash and cash equivalents 3,262 2,540 4 Assets held for sale 531 - Total current assets 8,727 7,353
Total assets 22,017 20,429
EQUITY Capital and reserves attributable to the Company's equity holders 28 Equity share capital 253 251 28 Preference share capital 1 1 28 Share premium account 4,324 4,219 28 Treasury Shares and own shares (76) (118) Other reserves 213 197 Foreign currency translation reserve 57 (542) Retained income 5,405 5,654 10,177 9,662 Non-controlling interests 21 24 Total equity 10,198 9,686
LIABILITIES Non-current liabilities 23 Interest-bearing loans and borrowings 5,419 4,579 24 Derivative financial instruments 3 34 26 Deferred income tax liabilities 1,305 1,166 18 Other payables 257 289 27 Retirement benefit obligations 711 410 25 Provisions for liabilities 257 231 Total non-current liabilities 7,952 6,709
Current liabilities 18 Trade and other payables 2,894 2,754 Current income tax liabilities 154 151 23 Interest-bearing loans and borrowings 447 961 24 Derivative financial instruments 20 19 25 Provisions for liabilities 139 149 4 Liabilities associated with assets classified as held for sale 213 - Total current liabilities 3,867 4,034
Total liabilities 11,819 10,743
Total equity and liabilities 22,017 20,429
N. Hartery, A. Manifold, Directors
CRH 105 Consolidated Statement of Changes in Equity for the financial year ended 31 December 2014 Attributable to the equity holders of the Company Treasury Foreign Issued Share Shares/ currency Non- share premium own Other translation Retained controlling Total capital account shares reserves reserve income interests equity €m €m €m €m €m €m €m €m Notes
At 1 January 2014 252 4,219 (118) 197 (542) 5,654 24 9,686 Group profit for the financial year - - - - - 582 2 584 Other comprehensive income - - - - 599 (351) - 248 Total comprehensive income - - - - 599 231 2 832 28 Issue of share capital (net of expenses) 2 105 - - - - - 107 7 Share-based payment expense - share option schemes - - - 1 - - - 1 - Performance Share Plans/Restricted Share Plan - - - 15 - - - 15 28 Treasury/own shares reissued - - 42 - - (42) - - Share option exercises - - - - - 22 - 22 11 Dividends (including shares issued in lieu of dividends) - - - - - (460) (4) (464) Acquisition of non-controlling interests ------(1) (1) At 31 December 2014 254 4,324 (76) 213 57 5,405 21 10,198
for the financial year ended 31 December 2013
At 1 January 2013 250 4,133 (146) 182 (169) 6,303 36 10,589 Group loss for the financial year - - - - - (296) 1 (295) Other comprehensive income - - - - (373) 117 - (256) Total comprehensive income - - - - (373) (179) 1 (551) 28 Issue of share capital (net of expenses) 2 86 - - - - - 88 7 Share-based payment expense - share option schemes - - - 1 - - - 1 - Performance Share Plans/Restricted Share Plan - - - 14 - - - 14 28 Treasury/own shares reissued - - 34 - - (34) - - 28 Shares acquired by Employee Benefit Trust (own shares) - - (6) - - - - (6) Share option exercises - - - - - 19 - 19 11 Dividends (including shares issued in lieu of dividends) - - - - - (455) (1) (456) 30 Non-controlling interests arising on acquisition of subsidiaries ------1 1 Acquisition of non-controlling interests ------(13) (13) At 31 December 2013 252 4,219 (118) 197 (542) 5,654 24 9,686
N. Hartery, A. Manifold, Directors
106 CRH Consolidated Statement of Cash Flows for the financial year ended 31 December 2014 2014 2013 €m €m Notes
Cash flows from operating activities Profit/(loss) before tax 761 (215) 8 Finance costs (net) 288 297 9 Share of equity accounted investments' result (55) 44 4 Profit on disposals (77) (26) Group operating profit 917 100 2 Depreciation charge 631 671 2 Amortisation of intangible assets 44 54 2 Impairment charge 49 650 7 Share-based payment expense 16 15 Other (primarily pension payments) (66) (96) 19 Net movement on working capital and provisions 35 77 Cash generated from operations 1,626 1,471 Interest paid (including finance leases) (262) (269) Corporation tax paid (127) (110) Net cash inflow from operating activities 1,237 1,092
Cash flows from investing activities 4 Proceeds from disposals 345 122 Interest received 8 13 Dividends received from equity accounted investments 30 33 13 Purchase of property, plant and equipment (435) (497) 30 Acquisition of subsidiaries (net of cash acquired) (151) (336) 15 Other investments and advances (3) (78) 19 Deferred and contingent acquisition consideration paid (26) (105) Net cash outflow from investing activities (232) (848)
Cash flows from financing activities Proceeds from exercise of share options 22 19 Acquisition of non-controlling interests (1) (13) Increase in interest-bearing loans, borrowings and finance leases 901 1,491 Net cash flow arising from derivative financial instruments (11) 64 28 Treasury/own shares purchased - (6) Repayment of interest-bearing loans, borrowings and finance leases (934) (586) 11 Dividends paid to equity holders of the Company (353) (367) 11 Dividends paid to non-controlling interests (4) (1) Net cash (outflow)/inflow from financing activities (380) 601
Increase in cash and cash equivalents 625 845
Reconciliation of opening to closing cash and cash equivalents Cash and cash equivalents at 1 January 2,540 1,747 Translation adjustment 130 (52) Increase in cash and cash equivalents 625 845 22 Cash and cash equivalents at 31 December 3,295 2,540
Reconciliation of opening to closing net debt Net debt at 1 January (2,973) (2,909) 30 Debt in acquired companies (7) (44) 4 Debt in disposed companies - 17 Increase in interest-bearing loans, borrowings and finance leases (901) (1,491) Net cash flow arising from derivative financial instruments 11 (64) Repayment of interest-bearing loans, borrowings and finance leases 934 586 Increase in cash and cash equivalents 625 845 Mark-to-market adjustment (3) 10 Translation adjustment (178) 77 20 Net debt at 31 December (2,492) (2,973)
N. Hartery, A. Manifold, Directors
CRH 107 Accounting Policies (including key accounting estimates and assumptions)
Basis of Preparation and is awaiting EU endorsement. The Group is currently assessing the impact of IFRS 9. The Consolidated Financial Statements of CRH plc have been prepared in accordance with International Financial Reporting Standards (IFRSs) There are no other IFRS or IFRIC interpretations that are effective as adopted by the European Union, which comprise standards and subsequent to the CRH 2014 financial year-end that would have a material interpretations approved by the International Accounting Standards Board impact on the results or financial position of the Group. (IASB). IFRS as adopted by the European Union differ in certain respects Key Accounting Policies which involve Estimates, Assumptions and from IFRS as issued by the IASB. However, the Consolidated Financial Judgements Statements for the financial years presented would be no different had IFRS as issued by the IASB been applied. The Consolidated Financial The preparation of the Consolidated Financial Statements in accordance Statements are also prepared in compliance with the Companies Acts with IFRS requires management to make certain estimates, assumptions 1963 to 2013 and Article 4 of the EU IAS Regulation. and judgements that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Management CRH plc, the Parent Company, is a publicly traded limited company believes that the estimates, assumptions and judgements upon which it incorporated and domiciled in the Republic of Ireland. relies are reasonable based on the information available to it at the time The Consolidated Financial Statements, which are presented in euro that those estimates, assumptions and judgements are made. In some millions, have been prepared under the historical cost convention as cases, the accounting treatment of a particular transaction is specifically modified by the measurement at fair value of share-based payments, dictated by IFRS and does not require management’s judgement in its retirement benefit obligations and certain financial assets and liabilities application. including derivative financial instruments. Management consider that their use of estimates, assumptions and The accounting policies set out below have been applied consistently by judgements in the application of the Group’s accounting policies are inter- all the Group’s subsidiaries, joint ventures and associates to all periods related and therefore discuss them together below. The critical accounting presented in these Consolidated Financial Statements. policies which involve significant estimates, assumptions or judgements, the actual outcome of which could have a material impact on the Group’s Certain prior year disclosures have been amended to conform to current results and financial position outlined below, are as follows: year presentation. An amount of €161 million has been reclassified from cost of sales to operating expenses in 2013 to align with current year Impairment of long-lived assets and goodwill – Notes 13 and 14 presentation. Impairment of property, plant and equipment and goodwill In accordance with Section 148(8) of the Companies Act, 1963 and Section The carrying values of items of property, plant and equipment are reviewed 71 (A) of the Companies (Amendment) Act, 1986, the Company is availing for indicators of impairment at each reporting date and are subject to of the exemption from presenting its individual profit and loss account impairment testing when events or changes in circumstances indicate to the Annual General Meeting and from filing it with the Registrar of that the carrying values may not be recoverable. Goodwill is subject to Companies. impairment testing on an annual basis and at any time during the year if an indicator of impairment is considered to exist. A decision to dispose of Adoption of IFRS and International Financial Reporting Interpretations a business unit represents one such indicator and in these circumstances Committee (IFRIC) interpretations the recoverable amount is assessed on a fair value less costs of disposal (i) The following standards and amendments have been adopted during basis. In the year in which a business combination is effected and where the financial year some or all of the goodwill allocated to a particular cash-generating unit arose in respect of that combination, the cash-generating unit is tested for • Offsetting Financial Assets and Financial Liabilities (Amendments impairment prior to the end of the relevant annual period. to IAS 32 Financial Instruments: Presentation) Property, plant and equipment assets are reviewed for potential • Recoverable Amount Disclosures for Non-Financial Assets impairment by applying a series of external and internal indicators (Amendments to IAS 36 Impairment of Assets) specific to the assets under consideration; these indicators encompass • Novation of Derivatives and Continuation of Hedge Accounting macroeconomic issues including the inherent cyclicality of the building (Amendments to IAS 39 Financial Instruments: Recognition and materials sector, actual obsolescence or physical damage, a deterioration Measurement) in forecast performance in the internal reporting cycle and restructuring and rationalisation programmes. • IFRIC 21 Levies Where the carrying value exceeds the estimated recoverable amount The application of the above standards and interpretations did not result (being the greater of fair value less costs of disposal and value-in-use), in material changes to the results or financial position of the Group. an impairment loss is recognised by writing down the assets to their (ii) IFRS and IFRIC interpretations being adopted in subsequent years recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate IFRS 15 Revenue from Contracts with Customers will replace IAS 18 that reflects current market assessments of the time value of money and Revenue, IAS 11 Construction Contracts and related interpretations. the risks specific to the asset for which the future cash flow estimates have The new standard is applicable from 1 January 2017 and is subject to not been adjusted. The estimates of future cash flows exclude cash inflows EU endorsement. IFRS 15 provides a new five step model to be applied or outflows attributable to financing activities and income tax. For an asset to revenue arising from contracts with customers. The principles in that does not generate largely independent cash inflows, the recoverable IFRS 15 provide a more structured approach to measuring and recognising amount is determined by reference to the cash-generating unit to which revenue and may impact the timing and amount of revenue recognised the asset belongs. Impairment losses arising in respect of goodwill are not from contracts with customers. The Group is currently assessing the reversed once recognised. impact of IFRS 15. Goodwill relating to associates and joint ventures is included in IFRS 9 Financial Instruments reflects the final phase of the IASB’s the carrying amount of the investment and is neither amortised nor work on the replacement of IAS 39 Financial Instruments: Recognition individually tested for impairment. Where indicators of impairment of an and Measurement and applies to the classification and measurement of investment arise in accordance with the requirements of IAS 39 Financial financial assets and liabilities as defined in IAS 39, impairment, and the Instruments: Recognition and Measurement, the carrying amount is tested application of hedge accounting. IFRS 9 is effective from 1 January 2018
108 CRH for impairment by comparing its recoverable amount with its carrying Assumptions amount. The assumptions underlying the actuarial valuations from which the amounts recognised in the Consolidated Financial Statements The impairment testing process requires management to make significant are determined (including discount rates, rates of increase in future judgements and estimates regarding the future cash flows expected to compensation levels, mortality rates and healthcare cost trend rates) are be generated by the use of and, if applicable, the eventual disposal of, updated annually based on current economic conditions and for any long-lived assets and goodwill as well as other factors to determine the relevant changes to the terms and conditions of the pension and post- fair value of the assets. Management periodically evaluates and updates retirement plans. These assumptions can be affected by (i) for the discount the estimates based on the conditions which influence these variables. rate, changes in the rates of return on high-quality corporate bonds; (ii) A detailed discussion of the impairment methodology applied and key for future compensation levels, future labour market conditions and (iii) assumptions used by the Group in the context of long-lived assets and for healthcare cost trend rates, the rate of medical cost inflation in the goodwill is provided in note 14 to the Consolidated Financial Statements. relevant regions. The weighted average actuarial assumptions used and The assumptions and conditions for determining impairments of long- sensitivity analysis in relation to the significant assumptions employed lived assets and goodwill reflect management’s best assumptions and in the determination of pension and other post-retirement liabilities are estimates, but these items involve inherent uncertainties described above, contained in note 27 to the Consolidated Financial Statements. many of which are not under management’s control. As a result, the While management believes that the assumptions used are appropriate, accounting for such items could result in different estimates or amounts differences in actual experience or changes in assumptions may affect if management used different assumptions or if different conditions occur the obligations and expenses recognised in future accounting periods. in future accounting periods. The assets and liabilities of defined benefit pension schemes may exhibit Retirement benefit obligations – Note 27 significant period-on-period volatility attributable primarily to changes in bond yields and longevity. In addition to future service contributions, Costs arising in respect of the Group’s defined contribution pension significant cash contributions may be required to remediate past service schemes are charged to the Consolidated Income Statement in the period deficits. in which they are incurred. The Group has no legal or constructive obligation to pay further contributions in the event that the fund does not Provisions for liabilities – Note 25 hold sufficient assets to meet its benefit commitments. A provision is recognised when the Group has a present obligation (either The liabilities and costs associated with the Group’s defined benefit legal or constructive) as a result of a past event, it is probable that a pension schemes (both funded and unfunded) are assessed on the basis of transfer of economic benefits will be required to settle the obligation and the projected unit credit method by professionally qualified actuaries and a reliable estimate can be made of the amount of the obligation. Where the are arrived at using actuarial assumptions based on market expectations Group anticipates that a provision will be reimbursed, the reimbursement at the balance sheet date. The discount rates employed in determining the is recognised as a separate asset only when it is virtually certain that present value of the schemes’ liabilities are determined by reference to the reimbursement will arise. The expense relating to any provision is market yields at the balance sheet date on high-quality corporate bonds presented in the Consolidated Income Statement net of any reimbursement. of a currency and term consistent with the currency and term of the Provisions are measured at the present value of the expenditures expected associated post-employment benefit obligations. to be required to settle the obligation. The increase in the provision due to passage of time is recognised as an interest expense. Provisions arising The net surplus or deficit arising on the Group’s defined benefit pension on business combination activity are recognised only to the extent that schemes, together with the liabilities associated with the unfunded they would have qualified for recognition in the financial statements of schemes, are shown either within non-current assets or non-current the acquiree prior to acquisition. Provisions are not recognised for future liabilities in the Consolidated Balance Sheet. The deferred tax impact operating losses. of pension scheme surpluses and deficits is disclosed separately within deferred tax assets or liabilities as appropriate. Remeasurements, Rationalisation and redundancy provisions comprising of actuarial gains and losses and the return on plan assets Provisions for rationalisation and redundancy are established when (excluding net interest), are recognised immediately in the Consolidated a detailed restructuring plan has been drawn up, resolved upon by the Balance Sheet with a corresponding debit or credit to retained earnings responsible decision-making level of management and communicated through other comprehensive income in the period in which they occur. to the employees who are affected by the plan. These provisions are Remeasurements are not reclassified to profit or loss in subsequent recognised at the present value of future disbursements and cover only periods. expenses that arise directly from restructuring measures and are necessary for restructuring; these provisions exclude costs related to future business The defined benefit pension asset or liability in the Consolidated Balance operations. Restructuring measures may include the sale or termination of Sheet comprises the total for each plan of the present value of the defined business units, site closures and relocation of business activities, changes benefit obligation less the fair value of plan assets out of which the in management structure or a fundamental reorganisation of departments obligations are to be settled directly. Plan assets are assets that are held by or business units. a long-term employee benefit fund or qualifying insurance policies. Fair value is based on market price information and, in the case of published Environmental and remediation provisions securities, it is the published bid price. The value of any defined benefit The measurement of environmental and remediation provisions is asset is limited to the present value of any economic benefits available based on an evaluation of currently available facts with respect to each in the form of refunds from the plan and reductions in the future individual site and considers factors such as existing technology, currently contributions to the plan. enacted laws and regulations and prior experience in remediation of sites. Inherent uncertainties exist in such evaluations primarily due to The Group’s obligation in respect of post-employment healthcare and life unknown conditions, changing governmental regulations and legal assurance benefits represents the amount of future benefit that employees standards regarding liability, the protracted length of the clean-up have earned in return for service in the current and prior periods. The periods and evolving technologies. The environmental and remediation obligation is computed on the basis of the projected unit credit method liabilities provided for in the Consolidated Financial Statements reflect and is discounted to present value using a discount rate equating to the the information available to management at the time of determination of market yield at the balance sheet date on high-quality corporate bonds of the liability and are adjusted periodically as remediation efforts progress a currency and term consistent with the currency and estimated term of or as additional technical or legal information becomes available. Due the post-employment obligations.
CRH 109 Accounting Policies | continued
to the inherent uncertainties described above, many of which are not The Group’s income tax charge is based on reported profit and expected under management’s control, the accounting for such items could result statutory tax rates, which reflect various allowances and reliefs and in different amounts if management used different assumptions or if tax planning opportunities available to the Group in the multiple tax different conditions occur in future accounting periods. jurisdictions in which it operates. The determination of the Group’s provision for income tax requires certain judgements and estimates in Legal contingencies relation to matters where the ultimate tax outcome may not be certain. The status of each significant claim and legal proceeding in which the The recognition or non-recognition of deferred tax assets as appropriate Group is involved is reviewed by management on a periodic basis and the also requires judgement as it involves an assessment of the future Group’s potential financial exposure is assessed. If the potential loss from recoverability of those assets. In addition, the Group is subject to tax audits any claim or legal proceeding is considered probable, and the amount can which can involve complex issues that could require extended periods for be estimated, a liability is recognised for the estimated loss. Because of the resolution. Although management believes that the estimates included uncertainties inherent in such matters, the related provisions are based on in the Consolidated Financial Statements and its tax return positions the best information available at the time; the issues taken into account by are reasonable, no assurance can be given that the final outcome of these management and factored into the assessment of legal contingencies matters will not be different than that which is reflected in the Group’s include, as applicable, the status of settlement negotiations, interpretations historical income tax provisions and accruals. Any such differences could of contractual obligations, prior experience with similar contingencies/ have a material impact on the income tax provision and profit for the claims, the availability of insurance to protect against the downside period in which such a determination is made. exposure and advice obtained from legal counsel and other third parties. As additional information becomes available on pending claims, the Property, plant and equipment – Note 13 potential liability is reassessed and revisions are made to the amounts The Group’s accounting policy for property, plant and equipment is accrued where appropriate. Such revisions in the estimates of the potential considered critical because the carrying value of €7,422 million at liabilities could have a material impact on the results of operations and 31 December 2014 represents a significant portion (34%) of total assets financial position of the Group. at that date. Property, plant and equipment are stated at cost less any accumulated depreciation and any accumulated impairments except Taxation – current and deferred – Notes 10 and 26 for certain items that had been revalued to fair value prior to the date of Current tax represents the expected tax payable (or recoverable) on the transition to IFRS (1 January 2004). taxable profit for the year using tax rates enacted for the period. Any Repair and maintenance expenditure is included in an asset’s carrying interest or penalties arising are included within current tax. Where amount or recognised as a separate asset, as appropriate, only when it items are accounted for outside of profit or loss, the related income tax is is probable that future economic benefits associated with the item will recognised either in other comprehensive income or directly in equity as flow to the Group and the cost of the item can be measured reliably. All appropriate. other repair and maintenance expenditure is charged to the Consolidated Deferred tax is recognised using the liability method on temporary Income Statement during the financial period in which it is incurred. differences arising at the balance sheet date between the tax bases of assets Borrowing costs incurred in the construction of major assets which take and liabilities and their carrying amounts in the Consolidated Financial a substantial period of time to complete are capitalised in the financial Statements. However, deferred tax liabilities are not recognised if they period in which they are incurred. arise from the initial recognition of goodwill; in addition, deferred income tax is not accounted for if it arises from initial recognition of an asset In the application of the Group’s accounting policy, judgement is exercised or liability in a transaction other than a business combination that at by management in the determination of residual values and useful lives. the time of the transaction affects neither accounting nor taxable profit Depreciation and depletion is calculated to write off the book value of or loss. For the most part, no provision has been made for temporary each item of property, plant and equipment over its useful economic life differences applicable to investments in subsidiaries and joint ventures on a straight-line basis at the following rates: as the Group is in a position to control the timing of reversal of the Land and buildings: The book value of mineral-bearing land, less an temporary differences and it is probable that the temporary differences estimate of its residual value, is depleted over the period of the mineral will not reverse in the foreseeable future. However, a temporary difference extraction in the proportion which production for the year bears to the has been recognised to the extent that specific assets have been identified latest estimates of proven and probable mineral reserves. Land other for sale or where there is a specific intention to unwind the temporary than mineral-bearing land is not depreciated. In general, buildings are difference in the foreseeable future. Due to the absence of control in the depreciated at 2.5% per annum (“p.a.”). context of associates (significant influence only), deferred tax liabilities are recognised where appropriate in respect of CRH’s investments in these Plant and machinery: These are depreciated at rates ranging from entities on the basis that the exercise of significant influence would not 3.3% p.a. to 20% p.a. depending on the type of asset. Plant and machinery necessarily prevent earnings being remitted by other shareholders in the includes transport which is, on average, depreciated at 20% p.a. undertaking. Depreciation methods, useful lives and residual values are reviewed Deferred tax is determined using tax rates (and laws) that have been at each financial year-end. Changes in the expected useful life or the enacted or substantially enacted by the balance sheet date and are expected pattern of consumption of future economic benefits embodied in expected to apply when the related deferred income tax asset is realised the asset are accounted for by changing the depreciation period or method or the deferred income tax liability is settled. Deferred tax assets and as appropriate on a prospective basis. For the Group’s accounting policy liabilities are not subject to discounting. Deferred tax assets are recognised on impairment of property, plant and equipment please see impairment of in respect of all deductible temporary differences, carry-forward of unused long-lived assets and goodwill. tax credits and unused tax losses to the extent that it is probable that Other Significant Accounting Policies taxable profits will be available against which the temporary differences can be utilised. The carrying amounts of deferred tax assets are subject to Basis of consolidation review at each balance sheet date and are reduced to the extent that future The Consolidated Financial Statements include the financial statements taxable profits are considered to be inadequate to allow all or part of any of the Parent Company and all subsidiaries, joint ventures and associates, deferred tax asset to be utilised. drawn up to 31 December each year. The financial year-ends of the Group’s subsidiaries, joint ventures and associates are co-terminous.
110 CRH Subsidiaries Group and that the significant risks and rewards of ownership have passed Subsidiaries are all entities over which the Group has control. The Group to the buyer, usually on delivery of the goods. controls an entity when the Group is exposed to, or has rights to, variable Construction contracts returns from its involvement with the entity and has the ability to affect The Group engages primarily in the performance of fixed price contracts, as those returns through its power over the entity. Subsidiaries are fully opposed to cost plus contracts. Contract costs are recognised as incurred. consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. A change in When the outcome of a contract can be estimated reliably the Group the ownership interest of a subsidiary without a change in control is recognises revenue in accordance with the percentage-of-completion accounted for as an equity transaction. method. The completion percentage is generally measured based on the proportion of contract costs incurred at the balance sheet date relative to the Non-controlling interests represent the portion of the equity of a subsidiary total estimated costs of the contract. When the outcome of a construction not attributable either directly or indirectly to the Parent Company and are contract cannot be estimated reliably, contract revenue is recognised only presented separately in the Consolidated Income Statement and within to the extent of contract costs incurred where it is probable that these costs equity in the Consolidated Balance Sheet, distinguished from Parent will be recoverable. Company shareholders’ equity. Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as When it is probable that total contract costs will exceed total contract equity holders and therefore no goodwill is recognised as a result of such revenue, the expected loss is recognised immediately as an expense. transactions. On an acquisition by acquisition basis, the Group recognises Revenue and/or costs in respect of variations or contracts claims and any non-controlling interest in the acquiree either at fair value or at the incentive payments, to the extent that they arise, are recognised when non-controlling interest’s proportionate share of the acquiree’s net assets. it is probable that the amount, which can be measured reliably, will be recovered from/paid to the customer. Investments in associates and joint ventures – Notes 9 and 15 An associate is an entity over which the Group has significant influence. If circumstances arise that may change the original estimates of revenues, Significant influence is the power to participate in the financial and costs or extent of progress towards completion, estimates are revised. operating policy decisions of an entity, but is not control or joint control These revisions may result in increases or decreases in revenue or costs over those policies. and are reflected in income in the period in which the circumstances that give rise to the revision became known by management. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the Segment reporting – Note 1 joint venture. Joint control is the contractually agreed sharing of control Operating segments are reported in a manner consistent with the internal of the arrangement, which exists only when decisions about the relevant organisational and management structure and the internal reporting activities require unanimous consent of the parties sharing control. information provided to the Chief Operating Decision-Maker who is The Group’s investments in its associates and joint ventures are accounted responsible for allocating resources and assessing performance of the for using the equity method from the date significant influence/joint operating segments. control is deemed to arise until the date on which significant influence/ Assets and liabilities held for sale – Note 4 joint control ceases to exist or when the interest becomes classified as an asset held for sale. Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. The Consolidated Income Statement reflects the Group’s share of profit after tax of the related associates and joint ventures. Investments in Non-current assets and disposal groups are classified as held for sale if associates and joint ventures are carried in the Consolidated Balance their carrying amounts will be recovered through a sale transaction rather Sheet at cost, adjusted in respect of post-acquisition changes in the than through continuing use. This condition is regarded as met only when Group’s share of net assets, less any impairment in value. Loans advanced the sale is highly probable and the asset or disposal group is available to equity accounted investments that have the characteristics of equity for immediate sale in its present condition subject only to terms that financing are also included in the investment held on the Consolidated are usual and customary for sales of such assets. Management must be Balance Sheet. If necessary, impairment losses on the carrying amount of committed to the sale, which should be expected to qualify for recognition an investment are reported within the Group’s share of equity accounted as a completed sale within one year from the date of classification as held investments’ results in the Consolidated Income Statement. If the Group’s for sale. share of losses exceeds the carrying amount of an associate or joint Property, plant and equipment and intangible assets are not depreciated venture, the carrying amount is reduced to nil and recognition of further or amortised once classified as held for sale. The Group ceases to use the losses is discontinued except to the extent that the Group has incurred equity method of accounting from the date on which an interest in a joint obligations in respect of the associate or joint venture. venture or associate becomes held for sale. Non-current assets classified Transactions eliminated on consolidation as held for sale and liabilities directly associated with those assets are Intra-group balances and transactions, income and expenses, and any presented separately as current items in the Consolidated Balance Sheet. unrealised gains or losses arising from such transactions, are eliminated in Share-based payments – Note 7 preparing the Consolidated Financial Statements. Unrealised gains arising from transactions with joint ventures and associates are eliminated to the The Group operates a number of equity-settled share-based payment extent of the Group’s interest in the entity. Unrealised losses are eliminated plans. Its policy in relation to the granting of share options and awards in the same manner as unrealised gains, but only to the extent that there is under these plans, together with the nature of the underlying market and no evidence of impairment in the Group’s interest in the entity. non-market performance and other vesting conditions, are addressed in the Directors’ Remuneration Report on page 75. The Group has no Revenue recognition exposure in respect of cash-settled share-based payment transactions and Revenue represents the value of goods and services supplied and is share-based payment transactions with cash alternatives. net of trade discounts and value added tax/sales tax. Other than in the Share options case of construction contracts, revenue is recognised to the extent that Fair value is determined on the basis that the services to be rendered revenue and related costs incurred or to be incurred are subject to reliable by employees as consideration for the granting of share options will be measurement, that it is probable that economic benefits will flow to the received over the vesting period, which is assessed as at the grant date.
CRH 111 Accounting Policies | continued
The share options granted by the Company are at market value at date of Business combinations – Note 30 grant and are not subject to market-based vesting conditions within the The Group applies the acquisition method in accounting for business meaning of IFRS 2 Share-based Payment. combinations. The cost of an acquisition is measured as the aggregate of The cost is recognised, together with a corresponding increase in equity, the consideration transferred (excluding amounts relating to the settlement over the period in which the performance and/or service conditions are of pre-existing relationships), the amount of any non-controlling interest fulfilled. The cumulative expense recognised at each reporting date until in the acquiree and, in a business combination achieved in stages, the the vesting date reflects the extent to which the vesting period has expired acquisition-date fair value of the acquirer’s previously-held equity interest and the Group’s best estimate of the number of equity instruments that in the acquiree. Transaction costs that the Group incurs in connection will ultimately vest. The Consolidated Income Statement expense/credit with a business combination are expensed as incurred. for a period represents the movement in cumulative expense recognised To the extent that settlement of all or any part of consideration for a at the beginning and end of that period. The cumulative charge to the business combination is deferred, the fair value of the deferred component Consolidated Income Statement is reversed only where the performance is determined through discounting the amounts payable to their present condition is not met or where an employee in receipt of share options value at the date of exchange. The discount component is unwound as leaves service prior to completion of the expected vesting period and an interest charge in the Consolidated Income Statement over the life of those options forfeit in consequence. the obligation. Any contingent consideration is recognised at fair value at No expense is recognised for awards that do not ultimately vest, except the acquisition date and included in the cost of the acquisition. The fair for share-based payments where vesting is conditional upon a non-vesting value of contingent consideration at acquisition date is arrived at through condition which is treated as vesting irrespective of whether or not it is discounting the expected payment (based on scenario modelling) to satisfied, provided that all other performance and/or service conditions present value. In general, in order for contingent consideration to become are satisfied. payable, pre-defined profit and/or profit/net asset ratios must be exceeded. Subsequent changes to the fair value of the contingent consideration will Where an award is cancelled, it is treated as if it is vested on the date be recognised in profit or loss unless the contingent consideration is of cancellation, and any expense not yet recognised for the award is classified as equity, in which case it is not remeasured and settlement is recognised immediately. This includes any award where non-vesting accounted for within equity. conditions within the control of either the Company or the employee are not met. All cancellations of awards are treated equally. The assets and liabilities arising on business combination activity are measured at their acquisition-date fair values. Contingent liabilities The proceeds received net of any directly attributable transaction costs assumed in business combination activity are recognised as of the are credited to share capital (nominal value) and share premium when the acquisition date, where such contingent liabilities are present obligations options are exercised. arising from past events and their fair value can be measured reliably. In The dilutive effect of outstanding options is reflected as additional share the case of a business combination achieved in stages, the acquisition-date dilution in the determination of diluted earnings per share. fair value of the acquirer’s previously-held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit or loss. To the extent that the Group receives a tax deduction relating to the services When the initial accounting for a business combination is determined paid in shares, deferred tax in respect of share options is provided on the provisionally, any adjustments to the provisional values allocated to the basis of the difference between the market price of the underlying equity consideration, identifiable assets or liabilities (and contingent liabilities, as at the date of the financial statements and the exercise price of the if relevant) are made within the measurement period, a period of no more option; where the amount of any tax deduction (or estimated future tax than one year from the acquisition date. deduction) exceeds the amount of the related cumulative remuneration expense, the current or deferred tax associated with the excess is Goodwill – Note 14 recognised directly in equity. Goodwill arising on a business combination is initially measured at cost, Awards under the Performance Share Plans being the excess of the cost of an acquisition over the net identifiable All awards granted under the 2006 Performance Share Plan and 75% of assets and liabilities assumed at the date of acquisition and relates to the awards granted under the 2014 Performance Share Plan are subject the future economic benefits arising from assets which are not capable of to a total shareholder return-based (and hence market-based) vesting being individually identified and separately recognised. Following initial condition. Accordingly, the fair value assigned to the related equity recognition, goodwill is measured at cost less any accumulated impairment instruments at the grant date is adjusted so as to reflect the anticipated losses. If the cost of the acquisition is lower than the fair value of the net likelihood as at the grant date of achieving the market-based vesting assets of the subsidiary acquired, the identification and measurement of condition. Awards are treated as vesting irrespective of whether or not the the related assets and liabilities and contingent liabilities are revisited and market condition is satisfied, provided that all other performance and/or the cost is reassessed with any remaining balance recognised immediately service conditions are satisfied. in the Consolidated Income Statement. The remaining 25% of awards granted under the 2014 Performance Share The carrying amount of goodwill in respect of associates and joint ventures Plan are subject to a cumulative cash flow target (non-market based) is included in investments accounted for using the equity method (i.e. vesting condition. The fair value of the awards is calculated as the market within financial assets) in the Consolidated Balance Sheet. price of the shares at the date of grant. No expense is recognised for awards Where a subsidiary is disposed of or terminated through closure, the that do not ultimately vest. At the balance sheet date the estimate of the carrying value of any goodwill of that subsidiary is included in the level of vesting is reviewed and any adjustment necessary is recognised in determination of the net profit or loss on disposal/termination. the Consolidated Income Statement. Intangible assets (other than goodwill) arising on business combinations Awards under the Restricted Share Plan – Note 14 The fair value of shares granted under the Restricted Share Plan is calculated as the market price of the shares at the date of grant reduced by An intangible asset is capitalised separately from goodwill as part of a the present value of dividends expected to be paid over the vesting period. business combination at cost (fair value at date of acquisition). Information on the models used by the Group to estimate the fair value of Subsequent to initial recognition, intangible assets are carried at cost less awards granted is included in note 7. any accumulated amortisation and any accumulated impairment losses.
112 CRH The carrying values of definite-lived intangible assets (the Group does not objective evidence that the Group will not be in a position to collect the currently have any indefinite-lived intangible assets other than goodwill) associated debts. Bad debts are written-off to the Consolidated Income are reviewed for indicators of impairment at each reporting date and are Statement on identification. subject to impairment testing when events or changes in circumstances Cash and cash equivalents – Note 22 indicate that the carrying values may not be recoverable. Cash and cash equivalents comprise cash balances held for the purpose of Intangible assets are amortised on a straight-line basis. In general, definite- meeting short-term cash commitments and investments which are readily lived intangible assets are amortised over periods ranging from one to ten convertible to a known amount of cash and are subject to an insignificant years, depending on the nature of the intangible asset. risk of change in value. Bank overdrafts are included within current Amortisation periods, useful lives, expected patterns of consumption interest-bearing loans and borrowings in the Consolidated Balance Sheet. and residual values are reviewed at each financial year-end. Changes in Where the overdrafts are repayable on demand and form an integral part the expected useful life or the expected pattern of consumption of future of cash management, they are netted against cash and cash equivalents for economic benefits embodied in the asset are accounted for by changing the purposes of the Consolidated Statement of Cash Flows. the amortisation period or method as appropriate on a prospective basis. Interest-bearing loans and borrowings – Note 23 Leases – Notes 3 and 29 All loans and borrowings are initially recorded at the fair value of the Leases where the lessor retains substantially all the risks and rewards of consideration received net of directly attributable transaction costs. ownership are classified as operating leases. Operating lease rentals are Subsequent to initial recognition, current and non-current interest- charged to the Consolidated Income Statement on a straight-line basis bearing loans and borrowings are, in general, measured at amortised over the lease term. cost employing the effective interest methodology. Fixed rate term loans, which have been hedged to floating rates (using interest rate swaps), are Other financial assets – Note 15 measured at amortised cost adjusted for changes in value attributable All investments are initially recognised at the fair value of consideration to the hedged risks arising from changes in underlying market interest given plus any directly attributable transaction costs. Where equity rates. The computation of amortised cost includes any issue costs and any investments are actively traded in organised financial markets, fair value discount or premium materialising on settlement. is determined by reference to Stock Exchange quoted market bid prices Gains and losses are recognised in the Consolidated Income Statement at the close of business on the balance sheet date. Unquoted equity through amortisation on the basis of the period of the loans and borrowings. investments are recorded at historical cost given that it is impracticable to determine fair value in accordance with IAS 39 and are included within Borrowing costs arising on financial instruments are recognised as an financial assets in the Consolidated Balance Sheet. expense in the period in which they are incurred (unless capitalised as part of the cost of property, plant and equipment). Inventories and construction contracts – Note 16 Derivative financial instruments and hedging practices – Note 24 Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in, first-out principle (and weighted average, where In order to manage interest rate, foreign currency and commodity risks and appropriate) and includes all expenditure incurred in acquiring the to realise the desired currency profile of borrowings, the Group employs inventories and bringing them to their present location and condition. derivative financial instruments (principally interest rate swaps, currency Raw materials are valued on the basis of purchase cost on a first-in, first- swaps and forward foreign exchange contracts). Derivative financial out basis. In the case of finished goods and work-in-progress, cost includes instruments are recognised initially at fair value on the date on which a direct materials, direct labour and attributable overheads based on normal derivative contract is entered into and are subsequently remeasured at fair operating capacity and excludes borrowing costs. value. The carrying value of derivatives is fair value based on discounted future cash flows and adjusted for counterparty risk. Future floating rate Net realisable value is the estimated proceeds of sale less all further cash flows are estimated based on future interest rates (from observable costs to completion, and less all costs to be incurred in marketing, yield curves at the end of the reporting period). Fixed and floating rate selling and distribution. Estimates of net realisable value are based on cash flows are discounted at future interest rates and translated at period- the most reliable evidence available at the time the estimates are made, end foreign exchange rates. taking into consideration fluctuations of price or cost directly relating to events occurring after the end of the period, the likelihood of short-term At the inception of a derivative transaction, the Group documents the changes in buyer preferences, product obsolescence or perishability (all relationship between the hedged item and the hedging instrument of which are generally low given the nature of the Group’s products) and together with its risk management objective and the strategy underlying the purpose for which the inventory is held. Materials and other supplies the proposed transaction. The Group also documents its assessment, held for use in the production of inventories are not written down below both at the inception of the hedging relationship and subsequently on an cost if the finished goods, in which they will be incorporated, are expected ongoing basis, of the effectiveness of the hedging instrument in offsetting to be sold at or above cost. movements in the fair values or cash flows of the hedged items. Where derivatives do not fulfil the criteria for hedge accounting, changes in fair Amounts recoverable on construction contracts, which are included in values are reported in the Consolidated Income Statement. receivables, are stated at the net invoiced value of the work done less amounts received as progress payments on account. Cumulative costs Fair value and cash flow hedges incurred, net of amounts transferred to cost of sales, after deducting The Group uses fair value hedges and cash flow hedges in its treasury foreseeable losses, provisions for contingencies and payments on account activities. For the purposes of hedge accounting, hedges are classified either not matched with revenue, are included as construction contract balances as fair value hedges (which entail hedging the exposure to movements in in inventories. Cost includes all expenditure directly related to specific the fair value of a recognised asset or liability or an unrecognised firm projects and an allocation of fixed and variable overheads incurred in the commitment that could affect profit or loss) or cash flow hedges (which Group’s contract activities based on normal operating capacity. hedge exposure to fluctuations in future cash flows derived from a particular risk associated with a recognised asset or liability, or a highly Trade and other receivables – Note 17 probable forecast transaction that could affect profit or loss). Trade receivables are carried at original invoice amount less an allowance Where the conditions for hedge accounting are satisfied and the hedging for potentially uncollectible debts. Provision is made when there is instrument concerned is classified as a fair value hedge, any gain or loss
CRH 113 Accounting Policies | continued
stemming from the remeasurement of the hedging instrument to fair value Dividends is reported in the Consolidated Income Statement. In addition, any gain Dividends on Ordinary Shares are recognised as a liability in the or loss on the hedged item which is attributable to the hedged risk is Consolidated Financial Statements in the period in which they are adjusted against the carrying amount of the hedged item and reflected declared by the Parent Company. in the Consolidated Income Statement. Where the adjustment is to the Emission rights carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised to the Consolidated Income Statement with the Emission rights are accounted for such that a liability is recognised only objective of achieving full amortisation by maturity. in circumstances where emission rights have been exceeded from the perspective of the Group as a whole and the differential between actual Where a derivative financial instrument is designated as a hedge of the and permitted emissions will have to be remedied through the purchase variability in cash flows of a recognised asset or liability or a highly of the required additional rights at fair value. Assets and liabilities arising probable forecast transaction that could affect profit or loss, the effective in respect of under and over-utilisation of emission credits respectively part of any gain or loss on the derivative financial instrument is recognised are accordingly netted against one another in the preparation of the as other comprehensive income, net of the income tax effect, with the Consolidated Financial Statements. To the extent that excess emission ineffective portion being reported in the Consolidated Income Statement. rights are disposed of during a financial period, the profit or loss The associated gains or losses that had previously been recognised as materialising thereon is recognised immediately within cost of sales in other comprehensive income are transferred to the Consolidated Income the Consolidated Income Statement. Statement contemporaneously with the materialisation of the hedged transaction. Any gain or loss arising in respect of changes in the time value Foreign currency translation of the derivative financial instrument is excluded from the measurement Items included in the financial statements of each of the Group’s entities of hedge effectiveness and is recognised immediately in the Consolidated are measured using the currency of the primary economic environment in Income Statement. which the entity operates (“the functional currency”). The Consolidated Hedge accounting is discontinued when the hedging instrument expires Financial Statements are presented in euro, which is the presentation or is sold, terminated or exercised, or no longer qualifies for hedge currency of the Group and the functional currency of the Parent Company. accounting. At that point in time, any cumulative gain or loss on the Transactions in foreign currencies are recorded at the rate ruling at the hedging instrument recognised as other comprehensive income remains date of the transaction. Monetary assets and liabilities denominated in there until the forecast transaction occurs. If a hedged transaction is no foreign currencies are retranslated at the rate of exchange ruling at the longer anticipated to occur, the net cumulative gain or loss previously balance sheet date. All currency translation differences are taken to the recognised as other comprehensive income is transferred to the Consolidated Income Statement with the exception of all monetary items Consolidated Income Statement in the period. that provide an effective hedge for a net investment in a foreign operation. Net investment hedges These are recognised in other comprehensive income until the disposal of Where foreign currency borrowings provide a hedge against a net the net investment, at which time they are recognised in the Consolidated investment in a foreign operation, and the hedge is deemed to be Income Statement. effective, foreign exchange differences are taken directly to a foreign Results and cash flows of subsidiaries, joint ventures and associates currency translation reserve. The ineffective portion of any gain or loss with non-euro functional currencies have been translated into euro on the hedging instrument is recognised immediately in the Consolidated at average exchange rates for the year, and the related balance sheets Income Statement. Cumulative gains and losses remain in equity until have been translated at the rates of exchange ruling at the balance sheet disposal of the net investment in the foreign operation at which point the date. Adjustments arising on translation of the results and net assets of related differences are transferred to the Consolidated Income Statement non-euro subsidiaries, joint ventures and associates are recognised in a as part of the overall gain or loss on sale. separate translation reserve within equity, net of differences on related Fair value hierarchy – Note 24 currency borrowings. All other translation differences are taken to the Consolidated Income Statement. Goodwill and fair value adjustments For financial reporting purposes, fair value measurements are categorised arising on acquisition of a foreign operation are regarded as assets and into Level 1, 2 or 3 based on the degree to which inputs to the fair value liabilities of the foreign operation and are translated accordingly. measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: The principal exchange rates used for the translation of results, cash flows and balance sheets into euro were as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Average Year-end Level 2: valuation techniques for which the lowest level of inputs which euro 1 = 2014 2013 2014 2013 have a significant effect on the recorded fair value are observable, either directly or indirectly; and US Dollar 1.3290 1.3281 1.2141 1.3791 Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on Pound Sterling 0.8062 0.8493 0.7789 0.8337 observable market data. Polish Zloty 4.1839 4.1975 4.2732 4.1543 Share capital and dividends – Notes 11 and 28 Ukrainian Hryvnia 15.8908 10.8339 19.1814 11.3583 Treasury Shares and own shares Swiss Franc 1.2147 1.2311 1.2024 1.2276 Ordinary Shares acquired by the Parent Company or purchased by the Canadian Dollar 1.4664 1.3684 1.4063 1.4671 Employee Benefit Trust on behalf of the Parent Company under the terms Argentine Peso 10.7785 7.2892 10.2645 8.9910 of the Performance Share Plans and the Restricted Share Plan are deducted from equity and presented on the face of the Consolidated Balance Sheet. Turkish Lira 2.9068 2.5335 2.8320 2.9605 No gain or loss is recognised in profit or loss on the purchase, sale, issue Indian Rupee 81.0576 77.9300 76.7190 85.3660 or cancellation of the Parent Company’s Ordinary Shares. Chinese Renminbi 8.1883 8.1646 7.5358 8.3491
114 CRH Notes on Consolidated Financial Statements
1. Segment Information
CRH is a diversified international building materials group which manufactures and distributes a range of building materials products from the fundamentals of heavy materials and elements to construct the frame, through value-added products that complete the building envelope, to distribution channels which service construction fit-out and renewal. In conjunction with the ongoing portfolio review, the Group reorganised its European business in 2014. Following this, the Group is now organised into six segments: Europe Heavyside, Europe Lightside, Europe Distribution, Americas Materials, Americas Products and Americas Distribution. Comparative segment information has been restated. No operating segments have been aggregated to form these segments. Europe Heavyside businesses are predominantly engaged in the manufacturing and supply of cement, aggregates, readymixed and precast concrete, concrete landscaping and asphalt products. Europe Lightside businesses are predominately engaged in the production and supply of construction accessories, shutters & awnings, fencing and composite access chambers. Europe Distribution businesses are predominantly engaged in supplying Do-It-Yourself (DIY), General Merchants and Sanitary, Heating and Plumbing (SHAP) businesses catering to the general public and small and medium-sized builders, selling a range of bricks, cement, sanitary, heating, plumbing and other building products. Americas Materials businesses are predominantly engaged in the production and sale of aggregates, asphalt and readymixed concrete products and provide asphalt paving services. Americas Products businesses are predominantly engaged in the production and sale of concrete masonry and hardscapes, clay brick, packaged lawn and garden products, packaged cement mixes, fencing, utility, drainage and structural precast products, glass and aluminium glazing systems and construction accessories. Americas Distribution businesses are predominantly engaged in supplying Exterior Products such as roofing and siding and Interior Products such as gypsum wallboard, metal studs and acoustical ceiling systems. The principal factors employed in the identification of the six segments reflected in this note include the Group’s organisational structure in 2014, the nature of the reporting lines to the Chief Operating Decision-Maker (as defined in IFRS 8Operating Segments), the structure of internal reporting documentation such as management accounts and budgets, and the degree of homogeneity of products, services and geographical areas within each of the segments from which revenue is derived. The Chief Operating Decision-Maker monitors the operating results of segments separately in order to allocate resources between segments and to assess performance. Segment performance is predominantly evaluated based on operating profit. As performance is also evaluated using operating profit before depreciation and amortisation (EBITDA (as defined)*), supplemental information based on EBITDA (as defined)* is also provided below. Given that net finance costs and income tax are managed on a centralised basis, these items are not allocated between operating segments for the purposes of the information presented to the Chief Operating Decision-Maker and are accordingly omitted from the detailed segmental analysis below. There are no asymmetrical allocations to reporting segments which would require disclosure.
* EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ result after tax.
CRH 115 1. Segment Information | continued
A. Operating segments disclosures - Consolidated Income Statement data
Continuing operations - year ended 31 December Group operating profit before depreciation and Depreciation, amortisation (EBITDA amortisation and Group operating Revenue (as defined)*) impairment (i) profit (EBIT) 2014 2013 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m €m €m
Europe Heavyside 3,929 3,786 380 326 229 721 151 (395) Europe Lightside 913 856 94 71 23 43 71 28 Europe Distribution 3,999 3,936 190 186 78 80 112 106 Europe 8,841 8,578 664 583 330 844 334 (261)
Americas Materials 5,070 4,721 609 557 254 331 355 226 Americas Products 3,225 3,068 263 246 118 178 145 68 Americas Distribution 1,776 1,664 105 89 22 22 83 67 Americas 10,071 9,453 977 892 394 531 583 361 Total Group 18,912 18,031 1,641 1,475 724 1,375 917 100
Profit on disposals (ii) 77 26 Finance costs less income (246) (249) Other financial expense (42) (48) Share of equity accounted investments' profit/(loss) (iii) 55 (44) Profit/(loss) before tax 761 (215)
(i) See notes 13 and 14 for details of the impairment charge. (iii) Share of equity accounted (ii) Profit/(loss) on investments’ profit/ disposals (note 4) (loss) (note 9) Europe Heavyside 38 6 35 (60) Europe Lightside 1 6 - - Europe Distribution 6 (2) 13 9 Europe 45 10 48 (51)
Americas Materials 11 19 7 7 Americas Products 20 (3) - - Americas Distribution 1 - - - Americas 32 16 7 7 Total Group 77 26 55 (44)
* EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ result after tax.
116 CRH 1. Segment Information | continued
B. Operating segments disclosures - Consolidated Balance Sheet data Continuing operations - as at 31 December Total assets Total liabilities 2014 2013 2014 2013 €m €m €m €m Europe Heavyside 3,864 4,605 1,468 1,428 Europe Lightside 761 768 215 180 Europe Distribution 2,221 2,217 644 542 Europe 6,846 7,590 2,327 2,150
Americas Materials 6,245 5,510 969 772 Americas Products 2,542 2,360 679 656 Americas Distribution 951 853 283 255 Americas 9,738 8,723 1,931 1,683 Total Group 16,584 16,313 4,258 3,833
Reconciliation to total assets as reported in the Consolidated Balance Sheet: Investments accounted for using the equity method 1,329 1,340 Other financial assets 23 23 Derivative financial instruments (current and non-current) 102 80 Income tax assets (current and deferred) 186 133 Cash and cash equivalents 3,262 2,540 Assets held for sale 531 - Total assets as reported in the Consolidated Balance Sheet 22,017 20,429
Reconciliation to total liabilities as reported in the Consolidated Balance Sheet: Interest-bearing loans and borrowings (current and non-current) 5,866 5,540 Derivative financial instruments (current and non-current) 23 53 Income tax liabilities (current and deferred) 1,459 1,317 Liabilities associated with assets classified as held for sale 213 - Total liabilities as reported in the Consolidated Balance Sheet 11,819 10,743
C. Operating segments disclosures - other items
Additions to non-current assets Continuing operations - year ended 31 December Property, plant and Financial assets Total Group equipment (note 13) (note 15) 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m Europe Heavyside 113 132 - 70 113 202 Europe Lightside 14 13 - - 14 13 Europe Distribution 36 49 - 1 36 50 Europe 163 194 - 71 163 265
Americas Materials 173 199 3 7 176 206 Americas Products 81 83 - - 81 83 Americas Distribution 18 21 - - 18 21 Americas 272 303 3 7 275 310 Total Group 435 497 3 78 438 575
CRH 117 1. Segment Information | continued
D. Entity-wide disclosures Section 1: Information about products and services The Group’s revenue from external customers in respect of its principal products and services is analysed in the disclosures above. Segment revenue includes €3,351 million (2013: €3,268 million) in respect of revenue applicable to construction contracts. The bulk of our construction activities are performed by our Americas Materials reportable segment, are for the most part short-term in nature and are generally completed within the same financial reporting period. Revenue derived through the supply of services and intersegment revenue is not material to the Group. The transfer pricing policy implemented by the Group between operating segments and across its constituent entities is described in greater detail in note 31. In addition, due to the nature of building materials, which exhibit a low value-to-weight ratio, the Group’s revenue streams include a low level of cross-border transactions. Section 2: Information about geographical areas and customers CRH has a presence in 34 countries worldwide. The revenues from external customers and non-current assets (as defined in IFRS 8) attributable to the country of domicile and all foreign countries of operation are as follows; individual foreign countries which exceed 10% of total external Group revenue have been highlighted separately on the basis of materiality. Year ended 31 December As at 31 December Revenue by destination Non-current assets 2014 2013 2014 2013 €m €m €m €m Country of domicile - Republic of Ireland 306 278 477 475 United States of America 9,650 8,991 6,948 6,241 Benelux (mainly the Netherlands) 2,350 2,324 1,231 1,280 Other 6,606 6,438 4,268 4,794 Total Group 18,912 18,031 12,924 12,790
There are no material dependencies or concentrations on individual customers which would warrant disclosure under IFRS 8. The individual entities within the Group have a large number of customers spread across various activities, end-uses and geographies.
2. Cost Analysis
2014 2013 €m €m
Cost of sales analysis
Raw materials and goods for resale 7,527 7,240 Employment costs (note 5) 1,985 1,974 Energy conversion costs 655 644 Repairs and maintenance 452 421 Depreciation, amortisation and impairment (i) 532 792 Change in inventory (note 19) 34 37 Other production expenses (primarily sub-contractor costs and equipment rental) 2,242 2,045 Total 13,427 13,153
Operating costs analysis
Selling and distribution costs 3,143 3,054 Administrative expenses 1,425 1,724 Total 4,568 4,778
(i) Depreciation, amortisation and impairment analysis Cost of sales Operating costs Total 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m
Depreciation and depletion (note 13) 485 521 146 150 631 671 Impairment of property, plant and equipment (note 13) 47 271 2 4 49 275 Impairment of intangible assets (note 14) - - - 375 - 375 Amortisation of intangible assets (note 14) - - 44 54 44 54 Total 532 792 192 583 724 1,375
118 CRH 2. Cost Analysis | continued
Segmental analysis of 2013 impairment charges Portfolio review included in Annual share of equity impairment Portfolio Included in accounted process review operating profit entities Total €m €m €m €m €m
Europe Heavyside 58 444 502 101 603 Europe Lightside - 13 13 - 13 Europe Distribution 4 - 4 4 8 Europe 62 457 519 105 624
Americas Materials - 60 60 - 60 Americas Products 10 61 71 - 71 Americas Distribution - - - - - Americas 10 121 131 - 131 Total Group 72 578 650 105 755
Narrative disclosures regarding the 2013 impairments are included in section (b) of note 14.
3. Operating Profit Disclosures 2014 2013 €m €m
Operating lease rentals
- hire of plant and machinery 149 108 - land and buildings 216 220 - other operating leases 48 47 Total 413 375 Auditor’s remuneration In accordance with statutory requirements in Ireland, fees for professional services provided by the Group’s independent auditor in respect of each of the following categories were:
Audit of the Other assurance Tax advisory Group accounts (i) services (ii) services Total 2014 2013 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m €m €m EY Ireland (statutory auditor) 2 2 - - - - 2 2 EY (network firms) 12 12 1 2 1 1 14 15 Total 14 14 1 2 1 1 16 17
(i) Audit of the Group accounts includes Sarbanes-Oxley attestation and parent and subsidiary statutory audit fees, but excludes €2 million (2013: €1 million) paid to auditors other than EY.
(ii) Other assurance services includes attestation and due diligence services that are closely related to the performance of the audit.
CRH 119 4. Business and Non-current Asset Disposals
(a) Profit on disposal Business Disposal of other disposals non-current assets Total 2014 (i) 2013 2014 2013 2014 2013 €m €m €m €m €m €m Assets/(liabilities) disposed of at net carrying amount: - non-current assets (notes 13,14,15) 117 43 83 66 200 109 - working capital and provisions (note 19) 11 6 - - 11 6 - asset held for sale (ii) (note 15) - 139 - - - 139 - interest-bearing loans and borrowings - (17) - - - (17) Net assets disposed 128 171 83 66 211 237 Reclassification of currency translation effects on disposal 57 3 - - 57 3 Total 185 174 83 66 268 240 Proceeds from disposals (net of disposal costs) 224 26 121 96 345 122 Asset exchange (ii) (note 30) - 144 - - - 144 Profit/(loss) on disposals 39 (4) 38 30 77 26
(i) This relates principally to the disposal of our 50% equity stake in our Turkish joint venture, Denizli Çimento (which was part of the Europe Heavyside segment). (ii) On 25 February 2013, the Group transferred its 26% stake in Corporacion Uniland to Cementos Portland Valderrivas in exchange for a 99% stake in Cementos Lemona, an integrated cement, readymixed concrete and aggregates business.
(b) Assets held for sale In November 2013, a Group-wide portfolio review was initiated which identified a number of business units which did not meet our future returns objectives and which were in line for divestment. This review was completed during 2014; a multi-year divestment programme commenced during the year, with proceeds of €0.35 billion realised on business and non-current asset disposals in 2014. On 15 December 2014, the Group announced that it had reached agreement to dispose of its clay and concrete businesses in the United Kingdom (Europe Heavyside) and its clay business in the United States (Americas Products) for an Enterprise Value (EV) of Stg £414 million (€522 million). As part of the transaction, the purchaser will assume certain debt and pension liabilities and accordingly, the net cash consideration payable to CRH is expected to be approximately Stg £295 million. The transaction is expected to close in the first quarter of 2015. The assets associated with this transaction, together with a number of smaller business units, met the “held for sale” criteria set out in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations as at 31 December 2014 and the relevant assets and liabilities have accordingly been reclassified as assets or liabilities held for sale as appropriate as set out in the table below. The businesses either divested in 2014 or held for sale at year-end 2014 are not considered to be either separate major lines of business or geographical areas of operation and therefore do not constitute discontinued operations as defined in IFRS 5. 31 December 2014 €m
Assets Property, plant and equipment (note 13) 262 Intangible assets (note 14) 17 Financial assets (note 15) 34 Deferred income tax assets (note 26) 4 Inventories (note 19) 102 Trade and other receivables (note 19) 79 Cash and cash equivalents (note 22) 33 Assets held for sale 531
Liabilities Trade and other payables (note 19) 98 Current income tax liabilities 4 Provisions for liabilities (note 19) 7 Deferred income tax liabilities (note 26) 23 Retirement benefit obligations (note 27) 81 Liabilities associated with assets classified as held for sale 213
Net assets held for sale 318
Total losses recognised in other comprehensive income and accumulated in equity relating to assets held for sale amounted to €164 million at 31 December 2014.
120 CRH 5. Employment
The average number of employees is as follows: Year ended 31 December
2014 2013
Europe Heavyside 19,096 19,996 Europe Lightside 5,003 4,849 Europe Distribution 11,607 11,263 Europe 35,706 36,108
Americas Materials 18,457 18,216 Americas Products 17,707 17,276 Americas Distribution 3,836 3,709 Americas 40,000 39,201 Total Group 75,706 75,309
Employment costs charged in the Consolidated Income Statement are analysed as follows: 2014 2013 €m €m
Wages and salaries 2,987 2,915 Social welfare costs 368 360 Other employment-related costs 448 464 Share-based payment expense (note 7) 16 15 Total retirement benefits expense (note 27) 215 201 Total 4,034 3,955
Total charge analysed between: Cost of sales 1,985 1,974 Operating costs 2,035 1,959 Finance costs (net) - applicable to retirement benefit obligations (note 8) 14 22 Total 4,034 3,955
6. Directors’ Emoluments and Interests
Directors’ emoluments (which are included in administrative expenses in note 2) and interests are presented in the Directors’ Remuneration Report on pages 72 to 95 of this Annual Report.
7. Share-based Payment Expense
2014 2013 €m €m
Share option expense (i) 1 1 Performance Share Plans and Restricted Share Plan expense (ii) 15 14 Total 16 15
(i) Relates to options granted under the 2000 share option scheme, the 2010 share option scheme and the savings-related share option schemes. (ii) Relates to awards granted under the 2006 and 2014 Performance Share Plans and the 2013 Restricted Share Plan. The share-based payment expense is reflected in operating costs in the Consolidated Income Statement. In May 2014, shareholders approved the adoption of a new Performance Share Plan (the “2014 Performance Share Plan”), which replaced the 2006 Performance Share Plan (approved by shareholders in May 2006), the 2010 Share Option Scheme (approved by shareholders in May 2010) and the 2013 Restricted Share Plan (together, the “Existing Plans”). Following the introduction of the 2014 Performance Share Plan, no further awards will be made under the Existing Plans. Consequently, the last awards under the Existing Plans were made in 2013. The general terms and conditions applicable to the various plans are set out in the Directors’ Remuneration Report on pages 72 to 95. The Group also operates savings-related share option schemes. Due to the immateriality of the savings-related schemes’ expense and the level of savings- related share options outstanding, detailed financial disclosures have not been provided in relation to these schemes.
CRH 121 7. Share-based Payment Expense | continued
Share option schemes Details of options granted under the share option schemes (excluding savings-related share option schemes) Weighted average Number of Weighted average Number of exercise price options exercise price options 2014 2013
Outstanding at beginning of year €18.75 21,798,887 €18.84 23,295,955 Granted - - €16.19 3,853,400 Exercised (a) €16.58 (919,205) €13.21 (1,245,029) Lapsed €16.77 (5,398,491) €18.53 (4,105,439)
Outstanding at end of year (b) €19.58 15,481,191 €18.75 21,798,887 Exercisable at end of year €18.79 1,248,698 €17.94 2,114,772
(a) The weighted average share price at the date of exercise of these options was €20.47 (2013: €17.28). (b) The level of vesting of options outstanding at the end of the year will be determined by reference to certain performance targets (outlined on page 80 of this Annual Report). If the performance criteria have been met, these options, or portion thereof as appropriate, may be exercised after the expiration of three years from their date of grant. All options granted have a life of ten years.
2014 2013
Weighted average remaining contractual life for the share options outstanding at 31 December (years) 4.89 5.54
Euro-denominated options outstanding at the end of the year (number) 15,389,922 21,683,559 Range of exercise prices (€) 15.19-29.86 15.07-29.86
Sterling-denominated options outstanding at the end of the year (number) 91,269 115,328 Range of exercise prices (Stg£) 12.80-20.23 10.04-20.23
The CRH share price at 31 December 2014 was €19.90 (2013: €18.30). The following analysis shows the number of outstanding share options with exercise prices lower/higher than the year-end share price:
Number of options with exercise prices lower than year-end price: Exercisable 1,248,698 506,581 Not exercisable 8,789,200 13,788,399 10,037,898 14,294,980
Number of options with exercise prices higher than year-end price: Exercisable - 1,608,191 Not exercisable 5,443,293 5,895,716 5,443,293 7,503,907
Total options outstanding 15,481,191 21,798,887
The Group measures the fair value of options granted using the trinomial model (a lattice option-pricing model in accordance with IFRS 2 Share-based Payment). Due to the immateriality of the share option expense in both the current and the prior year, detailed fair value disclosures have not been included.
2014 Performance Share Plan The general terms and conditions of the 2014 Performance Share Plan were set out in a circular issued to shareholders prior to the Annual General Meeting held in 2014, a copy of which is available on www.crh.com. The structure of the 2014 Performance Share Plan is set out in the Directors’ Remuneration Report on page 72. An expense of €5 million was recognised in 2014.
Details of awards granted under the 2014 Performance Share Plan Period to Number of Shares Share price earliest at date release Initial Net of award date award outstanding
Granted in 2014 €20.49 3 years 2,283,960 2,270,340
75% of vesting is subject to Total Shareholder Return (TSR) performance against sector peers, while the remaining 25% of vesting is subject to a cumulative cash flow target. A small number of awards are subject only to a three year service period (i.e. no performance conditions).
122 CRH 7. Share-based Payment Expense | continued
The fair value assigned to the portion of awards which are subject to TSR performance was €10.88. The fair value of these awards was calculated using a TSR pricing model taking account of peer group TSR, volatilities and correlations together with the following assumptions:
2014
Risk-free interest rate (%) 0.13 Expected volatility (%) 21.9
The expected volatility was determined using a historical sample of 37 month-end CRH share prices. The fair value of (i) the portion of awards subject to cash flow performance and (ii) the awards with no performance conditions (which are subject to a three year service period) was €20.49. The fair value was calculated using the closing CRH share price at the date the award was granted. Awards vest only if all performance and service conditions are met. No expense is recognised for awards that do not ultimately vest. At the balance sheet date the estimate of the level of vesting is reviewed and any necessary adjustment to the share-based payment expense is recognised in the Consolidated Income Statement.
2006 Performance Share Plan The expense of €8 million (2013: €13 million) reported in the Consolidated Income Statement has been arrived at through applying a Monte Carlo simulation technique to model the combination of market-based and non-market-based performance conditions in the Plan.
Details of awards granted under the 2006 Performance Share Plan Period to Number of Shares Share price earliest at date release Initial Net Fair of award date award outstanding value
Granted in 2011 €16.52 3 years 1,684,250 - €9.72
Granted in 2012 €15.63 3 years 2,079,000 1,849,000 €7.77
Granted in 2013 €16.69 3 years 1,195,500 1,040,500 €8.54
In February 2014, 742,604 of the shares awarded under the Performance Share Plan in 2011 vested and accordingly were released to the participants of the scheme. The remaining awards granted in 2011 lapsed. The fair value of the shares awarded was determined using a Monte Carlo simulation technique taking account of peer group TSR, volatilities and correlations, together with the following assumptions: 2013
Risk-free interest rate (%) 0.10 Expected volatility (%) 31.3
2013 Restricted Share Plan Due to the immateriality of the Restricted Share Plan expense and the level of awards outstanding in this plan at 31 December 2014 and 31 December 2013, detailed financial disclosures have not been provided in relation to this share-based payment arrangement.
CRH 123 8. Finance Costs and Finance Income
2014 2013 €m €m
Finance costs Interest payable on borrowings 308 323 Net income on interest rate and currency swaps (42) (55) Mark-to-market of derivatives and related fixed rate debt: - interest rate swaps (i) (15) 68 - currency swaps and forward contracts - 1 - fixed rate debt (i) 8 (79) Net (gain)/loss on interest rate swaps not designated as hedges (5) 4 Net finance cost on gross debt including related derivatives 254 262
Finance income Interest receivable on loans to joint ventures and associates (3) (3) Interest receivable on cash and cash equivalents and other (5) (10) Finance income (8) (13)
Finance costs less income 246 249
Other financial expense Unwinding of discount element of provisions for liabilities (note 25) 16 15 Unwinding of discount applicable to deferred and contingent acquisition consideration (note 18) 12 11 Pension-related finance cost (net) (note 27) 14 22 Total 42 48
(i) The Group uses interest rate swaps to convert fixed rate debt to floating rate. Fixed rate debt, which has been converted to floating rate through the use of interest rate swaps, is stated in the Consolidated Balance Sheet at adjusted value to reflect movements in underlying fixed rates. The movement on this adjustment, together with the offsetting movement in the fair value of the related interest rate swaps, is included in finance costs in each reporting period.
9. Share of Equity Accounted Investments’ Profit/(Loss)
The Group’s share of joint ventures’ and associates’ result after tax is equity accounted and is presented as a single-line item in the Consolidated Income Statement; it is analysed as follows between the principal Consolidated Income Statement captions:
Joint Ventures Associates Total 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m
Group share of: Revenue 488 469 953 961 1,441 1,430
EBITDA (as defined)* 62 60 106 109 168 169 Depreciation and amortisation (27) (27) (45) (39) (72) (66) Impairment (i) - (54) - (51) - (105) Operating profit/(loss) 35 (21) 61 19 96 (2) Finance costs (net) (6) (2) (21) (22) (27) (24) Profit/(loss) before tax 29 (23) 40 (3) 69 (26) Income tax expense (3) (5) (11) (13) (14) (18) Profit/(loss) after tax 26 (28) 29 (16) 55 (44)
An analysis of the result after tax by operating segment is presented in note 1. The aggregated balance sheet data (analysed between current and non-current assets and liabilities) in respect of the Group’s investment in joint ventures and associates is presented in note 15. (i) See section (b) of note 14 for details of the 2013 impairment charge. * EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges and profit on disposals.
124 CRH 10. Income Tax Expense
Recognised within the Consolidated Income Statement 2014 2013 €m €m
(a) Current tax Republic of Ireland - (1) Overseas 141 77 Total current tax expense 141 76
(b) Deferred tax Origination and reversal of temporary differences: Retirement benefit obligations 7 16 Share-based payment expense - (1) Derivative financial instruments 6 4 Other items 23 (15) Total deferred tax expense 36 4
Income tax expense reported in the Consolidated Income Statement 177 80
Recognised within equity
(a) Within the Consolidated Statement of Comprehensive Income: Deferred tax - retirement benefit obligations 69 (43) Income tax recognised directly within equity 69 (43)
Reconciliation of applicable tax rate to effective tax rate
Profit/(loss) before tax (€m) 761 (215) Tax charge expressed as a percentage of profit/(loss) before tax (effective tax rate): - current tax expense only 18.5% (35.3%) - total income tax expense (current and deferred) 23.2% (37.2%)
The following table reconciles the applicable Republic of Ireland statutory tax rate to the effective tax rate (current and deferred) of the Group: % of profit/(loss) before tax Irish corporation tax rate 12.5 12.5 Higher tax rates on overseas earnings 9.6 17.8 Other items (primarily comprising items not chargeable to tax/expenses not deductible for tax): - arising from 2013 impairment - (70.2) - other items 1.1 2.7 Total effective tax rate 23.2 (37.2)
Other disclosures Changes in tax rates The total tax charge in future periods will be affected by any changes to the tax rates in force in the countries in which the Group operates.
Excess of capital allowances over depreciation The current tax charge will also be impacted by changes in the excess of tax depreciation (capital allowances) over accounting depreciation. Based on current capital investment plans, the Group expects to continue to be in a position to claim capital allowances in excess of depreciation in future years.
Investments in subsidiaries Given that participation exemptions and tax credits would be available in the context of the Group’s investments in subsidiaries in the majority of the jurisdictions in which the Group operates, the aggregate amount of temporary differences in respect of which deferred tax liabilities have not been recognised would be immaterial.
Proposed dividends There are no income tax consequences for the Company in respect of dividends proposed prior to issuance of the Consolidated Financial Statements and for which a liability has not been recognised.
CRH 125 11. Dividends
The dividends paid and proposed in respect of each class of share capital are as follows: 2014 2013 €m €m
Dividends to shareholders Preference 5% Cumulative Preference Shares €3,175 (2013: €3,175) - - 7% 'A' Cumulative Preference Shares €77,521 (2013: €77,521) - - Equity Final - paid 44.00c per Ordinary Share (2013: 44.00c) 323 320 Interim - paid 18.50c per Ordinary Share (2013: 18.50c) 137 135 Total 460 455
Dividends proposed (memorandum disclosure) Equity Final 2014 - proposed 44.00c per Ordinary Share (2013: 44.00c) 359 323
Reconciliation to Consolidated Statement of Cash Flows Dividends to shareholders 460 455 Less: issue of scrip shares in lieu of cash dividends (note 28) (107) (88) Dividends paid to equity holders of the Company 353 367 Dividends paid by subsidiaries to non-controlling interests 4 1 Total dividends paid 357 368
12. Earnings per Ordinary Share
The computation of basic and diluted earnings per Ordinary Share is set out below: 2014 2013 €m €m
Numerator computations Group profit/(loss) for the financial year 584 (295) Profit attributable to non-controlling interests (2) (1) Profit/(loss) attributable to equity holders of the Company 582 (296) Preference dividends - - Profit/(loss) attributable to ordinary equity holders of the Company - numerator for basic/diluted earnings per Ordinary Share 582 (296) Depreciation charge 631 671 Amortisation of intangible assets 44 54 Impairment of property, plant and equipment and intangible assets 49 650 Impairment of financial assets - 105 Numerator for "cash" earnings per Ordinary Share (i) 1,306 1,184
Denominator computations Denominator for basic earnings per Ordinary Share Weighted average number of Ordinary Shares (millions) outstanding for the year (ii) 737.6 729.2 Effect of dilutive potential Ordinary Shares (employee share options) (millions) (ii) and (iii) 0.7 - Denominator for diluted earnings per Ordinary Share 738.3 729.2
Basic earnings/(loss) per Ordinary Share 78.9c (40.6c) Diluted earnings/(loss) per Ordinary Share 78.8c (40.6c) "Cash" earnings per Ordinary Share (i) 177.1c 162.4c
(i) This measure is presented here for information as management believes it is a useful indicator of the Group’s ability to generate cash from operations. “Cash” earnings per Ordinary Share on a diluted earnings basis amounted to 176.9c. This is not a recognised measure under generally accepted accounting principles. (ii) The weighted average number of Ordinary Shares included in the computation of basic and diluted earnings per Ordinary Share has been adjusted to exclude shares held by the Employee Benefit Trust and Ordinary Shares repurchased and held by the Company (CRH plc) as Treasury Shares given that these shares do not rank for dividend. The number of Ordinary Shares so held at the balance sheet date is detailed in note 28. (iii) Contingently issuable Ordinary Shares (totalling 19,062,236 at 31 December 2014 and 24,282,615 at 31 December 2013) are excluded from the computation of diluted earnings per Ordinary Share where the conditions governing exercisability have not been satisfied as at the end of the reporting period or they are antidilutive for the periods presented.
Subsequent to year end the Group completed a share placing. Further details are set out in note 33.
126 CRH 13. Property, Plant and Equipment
Assets in Land and Plant and course of buildings (i) machinery construction Total €m €m €m €m
At 31 December 2014 Cost/deemed cost 6,068 8,940 220 15,228 Accumulated depreciation (and impairment charges) (1,892) (5,914) - (7,806) Net carrying amount 4,176 3,026 220 7,422
At 1 January 2014, net carrying amount 4,096 3,214 229 7,539 Translation adjustment 329 64 1 394 Reclassifications 66 34 (100) - Additions at cost 45 264 126 435 Arising on acquisition (note 30) 20 71 - 91 Disposals at net carrying amount (68) (27) - (95) Reclassified as held for sale (173) (88) (1) (262) Depreciation charge for year (132) (499) - (631) Impairment charge for year (ii) (7) (7) (35) (49) At 31 December 2014, net carrying amount 4,176 3,026 220 7,422
The equivalent disclosure for the prior year is as follows:
At 31 December 2013 Cost/deemed cost 5,912 8,847 229 14,988 Accumulated depreciation (and impairment charges) (1,816) (5,633) - (7,449) Net carrying amount 4,096 3,214 229 7,539
At 1 January 2013, net carrying amount 4,313 3,371 287 7,971 Translation adjustment (129) (114) (8) (251) Reclassifications 7 144 (151) - Additions at cost 46 350 101 497 Arising on acquisition (note 30) 132 210 - 342 Disposals at net carrying amount (30) (44) - (74) Depreciation charge for year (132) (539) - (671) Impairment charge for year (iii) (111) (164) - (275) At 31 December 2013, net carrying amount 4,096 3,214 229 7,539
At 1 January 2013 Cost/deemed cost 5,838 8,694 287 14,819 Accumulated depreciation (and impairment charges) (1,525) (5,323) - (6,848) Net carrying amount 4,313 3,371 287 7,971
(i) The carrying value of mineral-bearing land included in the land and buildings category above amounted to €1,997 million at the balance sheet date (2013: €1,824 million).
(ii) The impairment charge of €49 million in 2014, of which €47 million has been charged against cost of sales (see note 2), relates to the write down of property, plant and equipment in Europe Heavyside (€35 million) and Americas Products (€14 million).
(iii) The property, plant and equipment impairment charge of €275 million in 2013, of which €271 million was charged against cost of sales (see note 2), arose primarily from a Group-wide portfolio review initiated in November 2013; further details of this, and of the related impairment of intangible assets in 2013, are set out in section (b) of note 14.
Future purchase commitments for property, plant and equipment 2014 2013 €m €m
Contracted for but not provided in the financial statements 211 155 Authorised by the Directors but not contracted for 70 91
CRH 127 14. Intangible Assets Other intangible assets Marketing- Customer- Contract- Goodwill related related (i) based Total €m €m €m €m €m
At 31 December 2014 Cost/deemed cost 4,362 52 448 37 4,899 Accumulated amortisation (and impairment charges) (344) (40) (322) (20) (726) Net carrying amount 4,018 12 126 17 4,173
At 1 January 2014, net carrying amount 3,734 12 151 14 3,911 Translation adjustment 279 3 6 1 289 Arising on acquisition (note 30) 31 2 10 4 47 Disposals (10) (1) (2) - (13) Reclassified as held for sale (16) - (1) - (17) Amortisation charge for year - (4) (38) (2) (44) At 31 December 2014, net carrying amount 4,018 12 126 17 4,173
The equivalent disclosure for the prior year is as follows: At 31 December 2013 Cost/deemed cost 4,158 48 420 31 4,657 Accumulated amortisation (and impairment charges) (424) (36) (269) (17) (746) Net carrying amount 3,734 12 151 14 3,911
At 1 January 2013, net carrying amount 4,067 17 177 6 4,267 Translation adjustment (117) (1) (2) (1) (121) Arising on acquisition (note 30) 169 1 20 18 208 Disposals (12) - - (2) (14) Amortisation charge for year - (5) (42) (7) (54) Impairment charge for year (373) - (2) - (375) At 31 December 2013, net carrying amount 3,734 12 151 14 3,911
At 1 January 2013 Cost/deemed cost 4,122 51 413 17 4,603 Accumulated amortisation (and impairment charges) (55) (34) (236) (11) (336) Net carrying amount 4,067 17 177 6 4,267
(i) The customer-related intangible assets relate predominantly to non-contractual customer relationships. (a) Annual goodwill testing The net book value of goodwill capitalised under previous GAAP (Irish GAAP) as at the transition date to IFRS (1 January 2004) has been treated as deemed cost. Goodwill arising on acquisition since that date is capitalised at cost. Cash-generating units Goodwill acquired through business combination activity has been allocated to cash-generating units (CGUs) that are expected to benefit from synergies in that combination. The cash-generating units represent the lowest level within the Group at which the associated goodwill is monitored for internal management purposes, and are not larger than the operating segments determined in accordance with IFRS 8 Operating Segments. A total of 20 (2013: 19) cash-generating units have been identified and these are analysed between the six business segments in the Group below. The increase in the number of CGUs in 2014 relates to organisational changes in our Europe segments. As a result, a number of entities have been added to the Benelux CGU in Europe Heavyside, two new CGUs have been added (Germany - Europe Heavyside and Europe Lightside) and the Europe Products CGU has been removed. All businesses within the various cash- generating units exhibit similar and/or consistent profit margin and asset intensity characteristics. Assets, liabilities, deferred tax and goodwill have been assigned to the CGUs on a reasonable and consistent basis. Significant under-performance in any of CRH’s major cash-generating units may give rise to a material write-down of goodwill which would have a substantial impact on the Group’s income and equity. Cash-generating units Goodwill (€m) 2014 2013 2014 2013
Europe Heavyside* 8 7 650 697 Europe Lightside* 1 1 346 313 Europe Distribution 1 1 649 641 Europe 10 9 1,645 1,651
Americas Materials 7 7 1,313 1,151 Americas Products 2 2 703 618 Americas Distribution 1 1 357 314 Americas 10 10 2,373 2,083 Total Group 20 19 4,018 3,734
* Included in the goodwill numbers of Europe Heavyside and Europe Lightside at 31 December 2014 are amounts of €54 million and €9 million respectively (2013: €53 million and €9 million respectively) relating to businesses identified for divestment as part of the portfolio review, which have been tested separately (see section (b) below).
128 CRH 14. Intangible Assets | continued
Impairment testing methodology and results Goodwill is subject to impairment testing on an annual basis. The recoverable amount of each of the 20 CGUs is determined based on a value-in-use computation, using Level 3 inputs in accordance with the fair value hierarchy. The cash flow forecasts are primarily based on a five-year strategic plan document formally approved by senior management and the Board of Directors and specifically exclude the impact of future development activity. These cash flows are projected forward for an additional five years to determine the basis for an annuity-based terminal value, calculated on the same basis as the Group’s acquisition modelling methodology. As in prior years, the terminal value is based on a 20-year annuity. The projected cash flows assume zero growth in real cash flows beyond the initial evaluation period. The value-in-use represents the present value of the future cash flows, including the terminal value, discounted at a rate appropriate to each CGU. The real pre-tax discount rates used range from 7.5% to 12.2% (2013: 7.8% to 11.7%); these rates are in line with the Group’s estimated weighted average cost of capital, arrived at using the Capital Asset Pricing Model. The 2014 annual goodwill impairment testing process has resulted in no intangible asset impairments. The 2013 annual impairment testing process resulted in an impairment of €58 million being recorded in respect of our Benelux CGU in Europe Heavyside due to a difficult trading environment in 2013 and a slower recovery than previously anticipated. The assumptions underlying the 2013 value-in-use model projections resulted in a present value (using a real pre-tax discount rate of 9.4%) of €241 million and a related goodwill impairment being recorded of €58 million. Key sources of estimation uncertainty The cash flows have been arrived at taking account of the Group’s strong financial position, its established history of earnings and cash flow generation and the nature of the building materials industry, where product obsolescence is very low. However, expected future cash flows are inherently uncertain and are therefore liable to material change over time. The key assumptions employed in arriving at the estimates of future cash flows factored into impairment testing are subjective and include projected EBITDA (as defined)* margins, net cash flows, discount rates used and the duration of the discounted cash flow model. Significant goodwill amounts The goodwill allocated to the Europe Distribution and the Oldcastle Building Products (Americas Products segment) CGUs accounts for between 10% and 20% of the total carrying amount of €4,018 million. The goodwill allocated to each of the remaining CGUs is less than 10% of the total carrying value in all other cases. The additional disclosures required for the two CGUs with significant goodwill are as follows: Oldcastle Europe Distribution Building Products 2014 2013 2014 2013
Goodwill allocated to the cash-generating unit at balance sheet date €649m €641m €699m €615m Discount rate applied to the cash flow projections (real pre-tax) 9.4% 9.4% 11.9% 11.7% Average EBITDA (as defined)* margin over the initial 5-year period 5.9% 6.4% 11.0% 10.6% Value-in-use (present value of future cash flows) €2,015m €2,201m €2,588m €2,380m Excess of value-in-use over carrying amount €336m €431m €509m €579m
The key assumptions and methodology used in respect of these two CGUs are consistent with those described above. The values applied to each of the key estimates and assumptions are specific to the individual CGUs and were derived from a combination of internal and external factors based on historical experience and took into account the cash flows specifically associated with these businesses. The cash flows and 20-year annuity-based terminal value were projected in line with the methodology disclosed above. Europe Distribution and Oldcastle Building Products are not included in the CGUs referred to in the “Sensitivity analysis” section below. Given the magnitude of the excess of value-in-use over carrying amount, and our belief that the key assumptions are reasonable, management believe that it is not reasonably possible that there would be a change in the key assumptions such that the carrying amount would exceed the value-in-use. Consequently no further disclosures relating to sensitivity of the value-in-use computations for the Europe Distribution or Oldcastle Building Products CGUs are considered to be warranted.
Sensitivity analysis Sensitivity analysis has been performed and results in additional disclosures in respect of 2 of the 20 CGUs. The key assumptions, methodology used and values applied to each of the key assumptions for the two cash-generating units are in line with those outlined above. The two CGUs had goodwill of €178 million at the date of testing. The table below identifies the amounts by which each of the following assumptions may either decline or increase to arrive at a zero excess of the present value of future cash flows over the book value of net assets in the two CGUs selected for sensitivity analysis disclosures: 2 CGUs Reduction in EBITDA (as defined)* margin 1.3 to 2.0 percentage points Reduction in profit before tax 8.6% to 15.9% Reduction in net cash flow 7.9% to 13.6% Increase in pre-tax discount rate 0.7 to 1.4 percentage points The average EBITDA (as defined)* margin for the aggregate of these two CGUs over the initial 5-year period was 9.2%. The value-in-use (being the present value of the future net cash flows) was €619 million and the carrying amount was €542 million, resulting in an excess of value-in-use over carrying amount of €77 million. While the Ukraine CGU is not considered to require additional sensitivity-related disclosures based on analysis performed, the country’s ongoing political situation remains uncertain. CRH’s activities in Ukraine are mainly located in the west of the country and are therefore not directly affected by the continuing conflict; however, the economic outlook for the country as a whole remains unclear. The net asset value of the Ukrainian CGU amounts to €267 million at year- end 2014.
* EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ result after tax.
CRH 129 14. Intangible Assets | continued
(b) Portfolio review update In November 2013, a Group-wide portfolio review was initiated to identify and focus on those businesses within our portfolio which offer the most attractive future returns, and to prioritise capital allocation to ensure profitable growth across our network of businesses. This review was completed during the year and a multi-year divestment programme has commenced with proceeds of €0.35 billion realised on business and non-current asset disposals in 2014 (see note 4). The decision to divest of these business units resulted in the need to assess them for impairment, either individually or combined where they form a new group for disposal purposes. Excluding business units divested during 2014, the remainder were assessed for impairment or reversal of previous impairments and also assessed from the perspective of the held for sale criteria set out in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (see note 4). A valuation was prepared based on the estimated fair value less costs of disposal (FVLCD) for each business unit. The valuations were then compared to the carrying value of each business and where that valuation fell below the carrying value an impairment charge was taken. No goodwill impairments or reversal of previous impairments were recorded during the year. In 2013, the total impairments (including financial asset impairments) arising from the portfolio review amounted to €683 million, of which €261 million related to property, plant and equipment (see note 13) and €317 million related to intangible assets. The largest impairments in 2013 arose in two business units within Europe Heavyside. Both businesses serve the residential new-build sector in mature markets. Financial asset impairments of €105 million were recorded in 2013 relating to two Europe Heavyside equity accounted investments. The additional disclosures required are as follows:
Business 1 Business 2 Financial Assets 2013 2013 2013
Amount of impairment loss recognised in 2013 €99m €75m €105m Description of valuation technique Income-based Income-based Income-based Level of fair value hierarchy Level 3 Level 3 Level 3 Recoverable amount (FVLCD) €182m €34m €172m Discount rate applicable to cash flow projections (real pre-tax) 8.9% 9.2% 9.2% - 9.8% Average EBITDA (as defined)* margin over initial 5-year period 13.5% 13.7% 20.1% - 22.5%
* EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ result after tax.
130 CRH 15. Financial Assets
Investments accounted for using the equity method (i.e. joint ventures and associates) Share of net Asset held assets Loans Total for sale Other (i) €m €m €m €m €m
At 1 January 2014 1,211 129 1,340 - 23 Translation adjustment 73 14 87 - - Investments and advances - 3 3 - - Disposals and repayments (82) (10) (92) - - Reclassified as held for sale (34) - (34) - - Retained profit 25 - 25 - - At 31 December 2014 1,193 136 1,329 - 23
The equivalent disclosure for the prior year is as follows:
At 1 January 2013 1,291 131 1,422 143 34 Translation adjustment (72) (5) (77) (1) (1) Investments and advances 64 10 74 - 4 Disposals and repayments - (7) (7) (139) (14) Arising on acquisition (note 30) 2 - 2 - - Retained loss (74) - (74) (3) - At 31 December 2013 1,211 129 1,340 - 23
(i) Other financial assets primarily comprise trade investments carried at historical cost.
Summarised financial information for the Group’s investment in joint ventures and associates which are accounted for using the equity method is as follows:
Joint Ventures Associates Total 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m
Non-current assets 548 600 955 862 1,503 1,462 Current assets 121 176 538 557 659 733 Non-current liabilities (161) (174) (209) (230) (370) (404) Current liabilities (73) (106) (526) (474) (599) (580) Net assets 435 496 758 715 1,193 1,211
A listing of the principal equity accounted investments is contained on page 166. The Group holds a 21.13% stake (2013: 21.13%) in Samse S.A., a publicly-listed distributor in France which is accounted for as an associate investment above. The fair value of this investment at the balance sheet date, calculated based on the number of shares held multiplied by the closing share price at 31 December 2014 (Level 1 input in the fair value hierarchy), was €75 million (2013: €58 million).
CRH 131 16. Inventories
2014 2013 €m €m
Raw materials 612 606 Work-in-progress (i) 80 86 Finished goods 1,568 1,562 Total inventories at the lower of cost and net realisable value 2,260 2,254
(i) Work-in-progress includes €8 million (2013: €2 million) in respect of the cumulative costs incurred, net of amounts transferred to cost of sales under percentage-of-completion accounting, for construction contracts in progress at the balance sheet date. An analysis of the Group’s cost of sales expense is provided in note 2 to the financial statements. Write-downs of inventories recognised as an expense within cost of sales amounted to €29 million (2013: €19 million).
17. Trade and Other Receivables
2014 2013 €m €m Current Trade receivables 1,810 1,725 Amounts receivable in respect of construction contracts (i) 476 422 Total trade receivables, gross 2,286 2,147 Provision for impairment (106) (118) Total trade receivables, net 2,180 2,029 Amounts receivable from equity accounted investments 6 4 Prepayments and other receivables 458 483 Total 2,644 2,516
Non-current Other receivables 85 93
The carrying amounts of current and non-current trade and other receivables approximate their fair value largely due to the short-term maturities and nature of these instruments.
(i) Includes unbilled revenue and retentions held by customers in respect of construction contracts at the balance sheet date amounting to €119 million and €82 million respectively (2013: €121 million and €63 million respectively).
Provision for impairment The movements in the provision for impairment of receivables during the financial year were as follows:
At 1 January 118 123 Translation adjustment 4 (2) Provided during year 28 36 Written-off during year (36) (33) Recovered during year (6) (6) Reclassified as held for sale (2) - At 31 December 106 118
Information in relation to the Group’s credit risk management is provided in note 21 to the financial statements.
Aged analysis The aged analysis of trade receivables and amounts receivable in respect of construction contracts at the balance sheet date was as follows:
Neither past due nor impaired 1,638 1,554 Past due but not impaired: - less than 60 days 373 290 - 60 days or greater but less than 120 days 117 126 - 120 days or greater 45 53 Past due and impaired (partial or full provision) 113 124 Total 2,286 2,147
Trade receivables and amounts receivable in respect of construction contracts are in general receivable within 90 days of the balance sheet date.
132 CRH 18. Trade and Other Payables
2014 2013 €m €m
Current Trade payables 1,506 1,495 Construction contract-related payables (i) 129 103 Deferred and contingent acquisition consideration (ii) 59 24 Accruals and other payables 1,148 1,093 Amounts payable to equity accounted investments 52 39 Total 2,894 2,754
Non-current Other payables 109 105 Deferred and contingent acquisition consideration (ii) 148 184 Total 257 289
(i) Construction contract-related payables include billings in excess of revenue, together with advances received from customers in respect of work to be performed under construction contracts and foreseeable losses thereon. Other than deferred and contingent consideration, the carrying amounts of trade and other payables approximate their fair value largely due to the short-term maturities and nature of these instruments.
(ii) Deferred and contingent acquisition consideration The fair value of total contingent consideration is €122 million (2013: €120 million), (Level 3 input in the fair value hierarchy) and deferred consideration is €85 million (2013: €88 million). On an undiscounted basis, the corresponding basis for which the Group may be liable for contingent consideration ranges from €nil million to a maximum of €145 million. The movement in deferred and contingent consideration during the financial year was as follows: At 1 January 208 297 Translation adjustment 16 (9) Arising on acquisitions and investments during year (note 30) 3 17 Changes in estimate (6) (3) Paid during year (26) (105) Discount unwinding 12 11 At 31 December 207 208
19. Movement in Working Capital and Provisions for Liabilities
Trade Trade Provisions and other and other for Inventories receivables payables liabilities Total €m €m €m €m €m
At 1 January 2014 2,254 2,609 (3,043) (380) 1,440 Translation adjustment 128 165 (173) (27) 93 Arising on acquisition (note 30) 23 20 (17) (1) 25 Disposals (9) (4) 2 - (11) Deferred and contingent acquisition consideration: - arising on acquisitions during year (note 30) - - (3) - (3) - paid during year - - 26 - 26 Reclassified as held for sale (102) (79) 98 7 (76) Interest accruals and discount unwinding - - (1) (16) (17) (Decrease)/increase in working capital and provisions for liabilities (34) 18 (40) 21 (35) At 31 December 2014 2,260 2,729 (3,151) (396) 1,442
The equivalent disclosure for the prior year is as follows: At 1 January 2013 2,333 2,603 (3,052) (366) 1,518 Translation adjustment (74) (80) 91 9 (54) Arising on acquisition (note 30) 41 53 (80) (14) - Disposals (9) (4) 7 - (6) Deferred and contingent acquisition consideration: - arising on acquisitions during year (note 30) - - (17) - (17) - paid during year - - 105 - 105 Interest accruals and discount unwinding - - (14) (15) (29) (Decrease)/increase in working capital and provisions for liabilities (37) 37 (83) 6 (77) At 31 December 2013 2,254 2,609 (3,043) (380) 1,440
CRH 133 20. Analysis of Net Debt
Components of net debt Net debt is a non-GAAP measure which we provide to investors as we believe they find it useful. Net debt comprises cash and cash equivalents, derivative financial instrument assets and liabilities and interest-bearing loans and borrowings and enables investors to see the economic effects of these in total (see note 21 for details of the capital and risk management policies employed by the Group). Net debt is commonly used in computations such as net debt as a % of total equity and net debt as a % of market capitalisation. As at 31 December 2014 As at 31 December 2013 Fair value (i) Book value Fair value (i) Book value €m €m €m €m Cash and cash equivalents (note 22) 3,295 3,295 2,540 2,540 Interest-bearing loans and borrowings (note 23) (6,302) (5,866) (5,799) (5,540) Derivative financial instruments (net) (note 24) 79 79 27 27 Group net debt (2,928) (2,492) (3,232) (2,973) (i) All interest-bearing loans and borrowings are Level 2 fair value measurements. The following table shows the effective interest rates on period-end fixed, gross and net debt: As at 31 December 2014 As at 31 December 2013 Weighted average Weighted average Interest fixed period Interest fixed period €m rate Years €m rate Years Interest-bearing loans and borrowings nominal - fixed rate (i) (5,657) (5,362) Derivative financial instruments - fixed rate 1,227 1,518 Net fixed rate debt including derivatives (4,430) 4.5% 5.2 (3,844) 5.5% 5.1 Interest-bearing loans and borrowings nominal - floating rate (ii) (63) (54) Adjustment of debt from nominal to book value (i) (146) (124) Derivative financial instruments - currency floating rate (1,148) (1,491) Gross debt including derivative financial instruments (5,787) 4.1% (5,513) 4.6% Cash and cash equivalents - floating rate 3,295 2,540 Group net debt (2,492) (2,973) Cash at bank and in hand reclassified as held for sale (note 22) (33) - Group net debt excluding cash reclassified as held for sale (2,525) (2,973) (i) Of the Group’s nominal fixed rate debt at 31 December 2014, €1,616 million (2013: €1,882 million) was hedged to floating rate at inception using interest rate swaps. The balance of nominal fixed rate debt of €4,041 million (2013: €3,480 million) pertains to financial liabilities measured at amortised cost in accordance with IAS 39 Financial Instruments: Recognition and Measurement. (ii) Floating rate debt comprises bank borrowings and finance leases bearing interest at rates set in advance for periods ranging from overnight to less than one year largely by reference to inter-bank interest rates. Currency profile The currency profile of the Group’s net debt and net worth (capital and reserves attributable to the Company’s equity holders) as at 31 December 2014 and 2013 is as follows: US Pound Swiss euro Dollar Sterling Franc Other (iii) Total €m €m €m €m €m €m Group net debt* by major currency (871) (1,117) (68) (250) (219) (2,525) Non-debt assets (including cash reclassified as held for sale) and liabilities analysed as follows: Non-current assets 3,061 7,003 346 778 2,015 13,203 Current assets 1,611 2,558 489 326 466 5,450 Non-current liabilities (616) (1,481) (92) (270) (71) (2,530) Current liabilities (1,117) (1,436) (368) (191) (288) (3,400) Non-controlling interests (5) (4) - (12) - (21) Capital and reserves attributable to the Company's equity holders 2,063 5,523 307 381 1,903 10,177 The equivalent disclosure for the prior year is as follows: Group net debt by major currency (1,304) (1,476) (57) 11 (147) (2,973) Non-debt assets and liabilities analysed as follows: Non-current assets 3,378 6,293 433 796 2,113 13,013 Current assets 1,568 2,138 234 330 526 4,796 Non-current liabilities (522) (1,221) (107) (169) (77) (2,096) Current liabilities (1,126) (1,221) (208) (198) (301) (3,054) Non-controlling interests (8) (3) - (12) (1) (24) Capital and reserves attributable to the Company's equity holders 1,986 4,510 295 758 2,113 9,662 (iii) The principal currencies included in this category are the Chinese Renminbi, the Polish Zloty, the Indian Rupee, the Ukrainian Hryvnia, the Canadian Dollar, the Israeli Shekel, the Turkish Lira and the Argentine Peso. * Excluding €33 million cash reclassified as held for sale which is analysed by major currency in current assets above.
134 CRH 21. Capital and Financial Risk Management
Capital management Overall summary The primary objectives of CRH’s capital management strategy are to ensure that the Group maintains a strong credit rating to support its business and to create shareholder value by managing the debt and equity balance and the cost of capital. No changes were made in the objectives, policies or processes for managing capital during 2014. The Board periodically reviews the capital structure of the Group, including the cost of capital and the risks associated with each class of capital. The Group manages and, if necessary, adjusts its capital structure taking account of underlying economic conditions; any material adjustments to the Group’s capital structure in terms of the relative proportions of debt and equity are approved by the Board. In order to maintain or adjust the capital structure, the Group may issue new shares, dispose of assets, amend investment plans, alter dividend policy or return capital to shareholders. The Group is committed to optimising the use of its balance sheet within the confines of the overall objective to maintain an investment grade credit rating. Dividend cover for year ended 31 December 2014 amounted to 1.26 times (2013 before impairment charges and the related tax credit: 0.95 times). The capital structure of the Group, which comprises net debt and capital and reserves attributable to the Company’s equity holders, may be summarised as follows: 2014 2013 €m €m
Capital and reserves attributable to the Company's equity holders 10,177 9,662 Net debt 2,492 2,973 Capital and net debt 12,669 12,635
Financial risk management objectives and policies The Group uses financial instruments throughout its businesses: interest-bearing loans and borrowings, cash and cash equivalents and finance leases are used to finance the Group’s operations; trade receivables and trade payables arise directly from operations; and derivatives, principally interest rate and currency swaps and forward foreign exchange contracts, are used to manage interest rate risks and currency exposures and to achieve the desired profile of borrowings. The Group does not trade in financial instruments nor does it enter into any leveraged derivative transactions. The Group’s corporate treasury function provides services to the business units, co-ordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the Group. The Head of Group Financial Operations reports to the General Manager of Finance and the activities of the corporate treasury function are subject to regular internal audit. Systems are in place to monitor and control the Group’s liquidity risks. The Group’s net debt position forms part of the monthly documentation presented to the Board of Directors. The main risks attaching to the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. Commodity price risk arising from financial instruments is of minimal relevance given that exposure is confined to a small number of contracts entered into for the purpose of hedging future movements in energy costs. The Board reviews and agrees policies for the prudent management of each of these risks as documented below.
Interest rate risk The Group’s exposure to market risk for changes in interest rates stems predominantly from its long-term debt obligations. Interest cost is managed using a mix of fixed and floating rate debt. With the objective of managing this mix in a cost-efficient manner, the Group enters into interest rate swaps, under which the Group contracts to exchange, at predetermined intervals, the difference between fixed and variable interest amounts calculated by reference to a pre-agreed notional principal. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt and the cash flow exposures of issued floating rate debt. The majority of these swaps are designated under IAS 39 Financial Instruments: Recognition and Measurement to hedge underlying debt obligations and qualify for hedge accounting; undesignated financial instruments are termed “not designated as hedges” in the analysis of derivative financial instruments presented in note 24. The following table demonstrates the impact on profit/(loss) before tax and total equity of a range of possible changes in the interest rates applicable to net floating rate borrowings, with all other variables held constant. These impacts are calculated based on the closing balance sheet for the relevant period and assume all floating interest rates and interest curves change by the same amount. For profit/(loss) before tax, the impact shown is the impact on closing balance sheet floating rate net debt for a full year while for total equity the impact shown is the impact on the value of financial instruments.
Percentage change in cost of borrowings +/- 1% +/- 0.5%
Impact on profit/(loss) before tax 2014 +/- €21m +/- €10m 2013 +/- €10m +/- €5m
Impact on total equity 2014 -/+ €5m -/+ €2m 2013 -/+ €8m -/+ €4m
CRH 135 21. Capital and Financial Risk Management | continued
Foreign currency risk Due to the nature of building materials, which in general exhibit a low value-to-weight ratio, CRH’s activities are conducted primarily in the local currency of the country of operation resulting in low levels of foreign currency transaction risk; variances arising in this regard are reflected in operating costs or cost of sales in the Consolidated Income Statement in the period in which they arise. Given the Group’s presence in 34 countries worldwide, the principal foreign exchange risk arises from fluctuations in the euro value of the Group’s net investment in a wide basket of currencies other than the euro; such changes are reported separately within the Consolidated Statement of Comprehensive Income. A currency profile of the Group’s net debt and net worth is presented in note 20. The Group’s established policy is to spread its net worth across the currencies of its various operations with the objective of limiting its exposure to individual currencies and thus promoting consistency with the geographical balance of its operations. In order to achieve this objective, the Group manages its borrowings, where practicable and cost effective, to hedge a portion of its foreign currency assets. Hedging is done using currency borrowings in the same currency as the assets being hedged or through the use of other hedging methods such as currency swaps. The following table demonstrates the sensitivity of profit/(loss) before tax and equity to selected movements in the relevant US$/€ exchange rate (with all other variables held constant); the US Dollar has been selected as the appropriate currency for this analysis given the materiality of the Group’s activities in the United States. The impact on profit/(loss) before tax is based on changing the US$/€ exchange rate used in calculating profit/(loss) before tax for the period. The impact on total equity and financial instruments is calculated by changing the US$/€ exchange rate used in measuring the closing balance sheet.
Percentage change in relevant US$/€ exchange rate +/- 5% +/- 2.5%
Impact on profit/(loss) before tax 2014 -/+ €26m -/+ €13m 2013 -/+ €14m -/+ €7m
Impact on total equity* 2014 -/+ €263m -/+ €135m 2013 -/+ €215m -/+ €110m
* Includes the impact on financial instruments which is as follows: 2014 +/- €53m +/- €27m 2013 +/- €70m +/- €36m
Financial instruments include deposits, money market funds, bank loans, medium term notes and other fixed term debt, interest rate swaps, commodity swaps and foreign exchange contracts. They exclude trade receivables and trade payables.
Credit/counterparty risk In addition to cash at bank and in hand, the Group holds significant cash balances which are invested on a short-term basis and are classified as cash equivalents (see note 22). These deposits and other financial instruments (principally certain derivatives and loans and receivables included within financial assets) give rise to credit risk on amounts due from counterparty financial institutions (stemming from their insolvency or a downgrade in their credit ratings). Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty primarily depending on its credit rating and by regular review of these ratings. Acceptable credit ratings are high investment-grade ratings - generally counterparties have ratings of A2/A or higher from Moody’s/ Standard & Poor’s ratings agencies. The maximum exposure arising in the event of default on the part of the counterparty (including insolvency) is the carrying value of the relevant financial instrument. In its worldwide insurance programme, the Group carries appropriate levels of insurance for typical business risks (including product liability) with various leading insurance companies. However, in the event of the failure of one or more of its insurance counterparties, the Group could be impacted by losses where recovery from such counterparties is not possible. Credit risk arising in the context of the Group’s operations is not significant with the total bad debt provision at the balance sheet date amounting to 4.6% of gross trade receivables (2013: 5.5%). Customer credit risk is managed at appropriate Group locations according to established policies, procedures and controls. Customer credit quality is assessed in line with strict credit rating criteria and credit limits established where appropriate. Outstanding customer balances are regularly monitored and a review for indicators of impairment (evidence of financial difficulty of the customer, payment default, breach of contract etc.) is carried out at each reporting date. Significant balances are reviewed individually while smaller balances are grouped and assessed collectively. Receivables balances are in general unsecured and non-interest-bearing. The trade receivables balances disclosed in note 17 comprise a large number of customers spread across the Group’s activities and geographies with balances classified as neither past due nor impaired representing 72% of the total trade receivables balance at the balance sheet date (2013: 72%); amounts receivable from related parties (notes 17 and 31) are immaterial. Factoring and credit guarantee arrangements are employed in certain of the Group’s operations where deemed to be of benefit by operational management. Liquidity risk The principal liquidity risks faced by the Group stem from the maturation of debt obligations and derivative transactions. A downgrade of CRH’s credit ratings may give rise to increases in funding costs in respect of future debt and may impair the Group’s ability to raise funds on acceptable terms. The Group’s corporate treasury function ensures that sufficient resources are available to meet such liabilities as they fall due through a combination of cash and cash equivalents, cash flows and undrawn committed bank facilities. Flexibility in funding sources is achieved through a variety of means including (i) maintaining cash and cash equivalents only with a diversity of highly-rated counterparties; (ii) limiting the maturity of such balances; (iii) borrowing the bulk of the Group’s debt requirements under committed bank lines or other term financing; and (iv) having surplus committed lines of credit. The undrawn committed facilities available to the Group as at the balance sheet date are quantified in note 23; these facilities span a wide number of highly- rated financial institutions thus minimising any potential exposure arising from concentrations in borrowing sources. The repayment schedule (analysed by maturity date) applicable to the Group’s outstanding interest-bearing loans and borrowings as at the balance sheet date is also presented in note 23.
136 CRH 21. Capital and Financial Risk Management | continued
The tables below show the projected contractual undiscounted total cash outflows (principal and interest) arising from the Group’s trade and other payables, gross debt and derivative financial instruments. The tables also include the gross cash inflows projected to arise from derivative financial instruments. These projections are based on the interest and foreign exchange rates applying at the end of the relevant financial year. Between Between Between Between Within 1 and 2 2 and 3 3 and 4 4 and 5 After 1 year years years years years 5 years Total €m €m €m €m €m €m €m At 31 December 2014 Financial liabilities - cash outflows Trade and other payables 2,894 178 25 16 11 56 3,180 Finance leases 2 2 2 1 2 4 13 Other interest-bearing loans and borrowings 452 1,371 1 536 500 2,882 5,742 Interest payments on other interest-bearing loans and borrowings 253 207 157 137 90 305 1,149 Cross-currency swaps - gross cash outflows 1,729 - - - - - 1,729 Gross projected cash outflows 5,330 1,758 185 690 603 3,247 11,813
Derivative financial instruments - cash inflows Interest rate swaps - net cash inflows (34) (28) (19) (14) (6) (18) (119) Cross-currency swaps - gross cash inflows (1,738) - - - - - (1,738) Gross projected cash inflows (1,772) (28) (19) (14) (6) (18) (1,857)
The equivalent disclosure for the prior year is as follows:
At 31 December 2013 Financial liabilities - cash outflows Trade and other payables 2,754 140 20 22 22 128 3,086 Finance leases 3 2 1 6 1 2 15 Other interest-bearing loans and borrowings 955 353 1,203 - 472 2,445 5,428 Interest payments on finance leases 1 1 - - - - 2 Interest payments on other interest-bearing loans and borrowings 263 214 178 134 116 318 1,223 Credit/counterparty risk Cross-currency swaps - gross cash outflows 2,196 327 - - - - 2,523 In addition to cash at bank and in hand, the Group holds significant cash balances which are invested on a short-term basis and are classified as cash equivalents (see note 22). These deposits and other financial instruments (principally certain derivatives and loans and receivables included within financial Gross projected cash outflows 6,172 1,037 1,402 162 611 2,893 12,277 assets) give rise to credit risk on amounts due from counterparty financial institutions (stemming from their insolvency or a downgrade in their credit ratings). Derivative financial instruments - cash inflows Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty primarily depending on its credit rating and by regular Interest rate swaps - net cash inflows (40) (30) (20) (12) (13) (22) (137) review of these ratings. Acceptable credit ratings are high investment-grade ratings - generally counterparties have ratings of A2/A or higher from Moody’s/ Standard & Poor’s ratings agencies. The maximum exposure arising in the event of default on the part of the counterparty (including insolvency) is the carrying Cross-currency swaps - gross cash inflows (2,183) (308) - - - - (2,491) value of the relevant financial instrument. Gross projected cash inflows (2,223) (338) (20) (12) (13) (22) (2,628) In its worldwide insurance programme, the Group carries appropriate levels of insurance for typical business risks (including product liability) with various Commodity price risk leading insurance companies. However, in the event of the failure of one or more of its insurance counterparties, the Group could be impacted by losses where The fair value of derivatives used to hedge future energy costs was €19 million unfavourable as at the balance sheet date (2013: €4 million unfavourable). recovery from such counterparties is not possible. Credit risk arising in the context of the Group’s operations is not significant with the total bad debt provision at the balance sheet date amounting to 4.6% of 22. Cash and Cash Equivalents gross trade receivables (2013: 5.5%). Customer credit risk is managed at appropriate Group locations according to established policies, procedures and controls. Customer credit quality is assessed in line with strict credit rating criteria and credit limits established where appropriate. Outstanding customer Cash and cash equivalents balances are spread across a wide number of highly-rated financial institutions. The credit risk attaching to these items is balances are regularly monitored and a review for indicators of impairment (evidence of financial difficulty of the customer, payment default, breach of contract documented in note 21. etc.) is carried out at each reporting date. Significant balances are reviewed individually while smaller balances are grouped and assessed collectively. Cash and cash equivalents are included in the Consolidated Balance Sheet at fair value and are analysed as follows: Receivables balances are in general unsecured and non-interest-bearing. The trade receivables balances disclosed in note 17 comprise a large number of customers spread across the Group’s activities and geographies with balances classified as neither past due nor impaired representing 72% of the total trade 2014 2013 receivables balance at the balance sheet date (2013: 72%); amounts receivable from related parties (notes 17 and 31) are immaterial. Factoring and credit €m €m guarantee arrangements are employed in certain of the Group’s operations where deemed to be of benefit by operational management. Cash at bank and in hand 689 582 Liquidity risk The principal liquidity risks faced by the Group stem from the maturation of debt obligations and derivative transactions. A downgrade of CRH’s credit ratings Investments (short-term deposits) 2,573 1,958 may give rise to increases in funding costs in respect of future debt and may impair the Group’s ability to raise funds on acceptable terms. The Group’s Total 3,262 2,540 corporate treasury function ensures that sufficient resources are available to meet such liabilities as they fall due through a combination of cash and cash equivalents, cash flows and undrawn committed bank facilities. Flexibility in funding sources is achieved through a variety of means including (i) maintaining Cash at bank earns interest at floating rates based on daily deposit bank rates. Short-term deposits, which include bank and money market deposits, are cash and cash equivalents only with a diversity of highly-rated counterparties; (ii) limiting the maturity of such balances; (iii) borrowing the bulk of the Group’s made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the debt requirements under committed bank lines or other term financing; and (iv) having surplus committed lines of credit. respective short-term deposit rates. The undrawn committed facilities available to the Group as at the balance sheet date are quantified in note 23; these facilities span a wide number of highly- Cash and cash equivalents at fair value include the following for the purposes of the Consolidated Statement of Cash Flows: rated financial institutions thus minimising any potential exposure arising from concentrations in borrowing sources. The repayment schedule (analysed by Cash at bank and in hand 689 582 maturity date) applicable to the Group’s outstanding interest-bearing loans and borrowings as at the balance sheet date is also presented in note 23. Investments (short-term deposits) 2,573 1,958 Cash at bank and in hand reclassified as held for sale 33 - Total 3,295 2,540
CRH 137 23. Interest-bearing Loans and Borrowings
Loans and borrowings outstanding 2014 2013 €m €m Bank overdrafts 70 40 Bank loans 16 28 Finance leases 13 15 Bonds and private placements 5,750 5,439 Other 17 18 Interest-bearing loans and borrowings* 5,866 5,540
* Including loans of €1 million (2013: €1 million) secured on specific items of property, plant and equipment; these figures do not include finance leases.
Maturity profile of loans and borrowings and undrawn committed facilities As at 31 December 2014 As at 31 December 2013 Undrawn Undrawn Loans and committed Loans and committed borrowings facilities** borrowings facilities** €m €m €m €m
Within one year 447 22 961 - Between one and two years 1,395 - 349 40 Between two and three years - - 1,240 1,625 Between three and four years 562 - 4 85 Between four and five years 505 2,641 506 200 After five years 2,957 - 2,480 - Total 5,866 2,663 5,540 1,950
** The Group manages its borrowing ability by entering into committed borrowing agreements. Revolving committed bank facilities are generally available to the Group for periods of up to five years from the date of inception. The figures shown above are the undrawn committed facilities available to be drawn by the Group at 31 December 2014.
Guarantees The Company has given letters of guarantee to secure obligations of subsidiary undertakings as follows: €5.8 billion in respect of loans, bank advances, derivative obligations and future lease obligations (2013: €5.5 billion), €288 million in respect of letters of credit (2013: €270 million) and €5 million in respect of other obligations (2013: €nil million). Pursuant to the provisions of Section 17, Companies (Amendment) Act, 1986, the Company has guaranteed the liabilities of its wholly-owned subsidiary undertakings and the Oldcastle Finance Company and Oldcastle North America Funding Company general partnerships in the Republic of Ireland for the financial year ended 31 December 2014 and, as a result, such subsidiary undertakings and the general partnerships have been exempted from the filing provisions of Section 7, Companies (Amendment) Act, 1986 and Regulation 20 of the European Communities (Accounts) Regulations, 1993 respectively.
Lender covenants The Group’s major bank facilities and debt issued pursuant to Note Purchase Agreements in private placements require the Group to maintain certain financial covenants. Non-compliance with financial covenants would give the relevant lenders the right to terminate facilities and demand early repayment of any sums drawn thereunder thus altering the maturity profile of the Group’s debt and the Group’s liquidity. Calculations for financial covenants are completed for twelve- month periods half-yearly on 30 June and 31 December. The Group was in full compliance with its financial covenants throughout each of the periods presented. The Group is not aware of any stated events of default as defined in the Agreements. The financial covenants are: (1) Minimum interest cover defined as PBITDA/net interest (all as defined in the relevant agreement) cover at no lower than 4.5 times. As at 31 December 2014 the ratio was 7.0 times (2013: 6.3 times); (2) Minimum net worth defined as total equity plus deferred tax liabilities and capital grants less repayable capital grants being in aggregate no lower than €5.0 billion (2013: €5.1 billion) (such minimum being adjusted for foreign exchange translation impacts). As at 31 December 2014 net worth (as defined in the relevant agreement) was €11.5 billion (2013: €10.9 billion).
138 CRH 24. Derivative Financial Instruments
The fair values of derivative financial instruments are analysed by year of maturity and by accounting designation as follows:
Fair Net Not value Cash flow investment designated hedges hedges hedges as hedges Total €m €m €m €m €m
At 31 December 2014
Derivative assets Within one year - current assets - 2 13 - 15
Between one and two years 22 - - - 22 Between three and four years 26 - - - 26 Between four and five years - - - 9 9 After five years 30 - - - 30 Non-current assets 78 - - 9 87
Total derivative assets 78 2 13 9 102
Derivative liabilities Within one year - current liabilities - (7) (4) (9) (20)
Between one and two years - (1) - - (1) Between two and three years - (1) - - (1) Between three and four years - (1) - - (1) Non-current liabilities - (3) - - (3)
Total derivative liabilities - (10) (4) (9) (23)
Net asset arising on derivative financial instruments 78 (8) 9 - 79
The equivalent disclosure for the prior year is as follows:
At 31 December 2013
Derivative assets Within one year - current assets 9 - 8 - 17
Between two and three years 30 - - - 30 Between four and five years 28 - - - 28 After five years - - - 5 5 Non-current assets 58 - - 5 63
Total derivative assets 67 - 8 5 80
Derivative liabilities Within one year - current liabilities - (2) (17) - (19)
Between one and two years - (21) - - (21) Between two and three years - (1) - - (1) Between three and four years - (1) - - (1) After five years (11) - - - (11) Non-current liabilities (11) (23) - - (34)
Total derivative liabilities (11) (25) (17) - (53)
Net asset arising on derivative financial instruments 56 (25) (9) 5 27
CRH 139 24. Derivative Financial Instruments | continued
At 31 December 2014 and 2013, the Group had no master netting or similar arrangements, collateral posting requirements, and enforceable right of set-off agreements with any of its derivative counterparts. Fair value hedges consist of interest rate swaps and currency swaps. These instruments hedge risks arising from changes in asset/ liability fair values due to interest rate and foreign exchange rate movements. Cash flow hedges consist of forward foreign exchange and commodity contracts and interest rate and currency swaps. These instruments hedge risks arising to future cash flows from movements in foreign exchange rates, commodity prices and interest rates. Cash flow hedges are expected to affect profit and loss over the period to maturity. Net investment hedges comprise cross-currency swaps and hedge changes in the value of net investments due to currency movements. The profit/(loss) arising on fair value, cash flow, net investment hedges and related hedged items reflected in the Consolidated Income Statement is shown below: 2014 2013 €m €m
Fair value of hedge instruments 15 (68) Fair value of the hedged items (16) 71
Components of other comprehensive income - cash flow hedges
Losses arising during the year: - commodity forward contracts (6) (2)
Fair value hierarchy 2014 2013 Level 2 Level 2 €m €m
Assets measured at fair value Fair value hedges - cross currency and interest rate swaps 78 67 Net investment hedges - cross currency swaps 13 8 Not designated as hedges (held-for-trading) - interest rate swaps 9 5 Cash flow hedges - cross currency, interest rate swaps and commodity forwards 2 - Total 102 80
Liabilities measured at fair value Fair value hedges - cross currency and interest rate swaps - (11) Cash flow hedges - cross currency, interest rate swaps and commodity forwards (10) (25) Net investment hedges - cross currency swaps (4) (17) Not designated as hedges (held-for-trading) - interest rate swaps (9) - Total (23) (53)
At 31 December 2014 and 2013 there were no derivatives valued using Level 1 or Level 3 fair value techniques. Valuation methods for Levels 1, 2 and 3 are described in the “fair value hierarchy” section of the accounting policies on page 114.
140 CRH 25. Provisions for Liabilities
Net present cost Arising on Provided Utilised Reclassified At 1 Translation acquisition during during as held Reversed Discount At 31 January adjustment (note 30) year year for sale unused unwinding December €m €m €m €m €m €m €m €m €m
31 December 2014 Insurance (i) 181 20 - 52 (50) - (3) 8 208 Environment and remediation (ii) 87 5 - 12 (4) (4) (4) 4 96 Rationalisation and redundancy (iii) 43 1 - 30 (48) - (3) 1 24 Other (iv) 69 1 1 14 (8) (3) (9) 3 68 Total 380 27 1 108 (110) (7) (19) 16 396
Analysed as: Non-current liabilities 231 257 Current liabilities 149 139 Total 380 396
The equivalent disclosure for the prior year is as follows:
31 December 2013 Insurance (i) 191 (7) - 42 (50) - (4) 9 181 Environment and remediation (ii) 82 (1) 5 6 (4) - (4) 3 87 Rationalisation and redundancy (iii) 26 - 5 55 (38) - (6) 1 43 Other (iv) 67 (1) 4 14 (11) - (6) 2 69 Total 366 (9) 14 117 (103) - (20) 15 380
Analysed as: Non-current liabilities 256 231 Current liabilities 110 149 Total 366 380
(i) This provision relates to actual and potential obligations arising under the self-insurance components of the Group’s insurance arrangements which comprise employers’ liability (workers’ compensation in the United States), public and products liability (general liability in the United States), automobile liability, property damage, business interruption and various other insurances; a substantial proportion of the total provision pertains to claims which are classified as “incurred but not reported”. Due to the extended timeframe associated with many of the insurances, a significant proportion of the total provision is subject to periodic actuarial valuation. The projected cash flows underlying the discounting process are established through the application of actuarial triangulations, which are extrapolated from historical claims experience. The triangulations applied in the discounting process indicate that the Group’s insurance provisions have an average life of six years (2013: six years). (ii) This provision comprises obligations governing site remediation and improvement costs to be incurred in compliance with either local or national environmental regulations together with constructive obligations stemming from established best practice. Whilst a significant element of the total provision will reverse in the medium-term (two to ten years), the majority of the legal and constructive obligations applicable to long-lived assets (principally mineral-bearing land) will unwind over a 30-year timeframe. In discounting the related obligations, expected future cash outflows have been determined with due regard to extraction status and anticipated remaining life. (iii) These provisions relate to irrevocable commitments under various rationalisation and redundancy programmes, none of which is individually material to the Group. In 2014, €30 million (2013: €55 million) was provided in respect of rationalisation and redundancy activities as a consequence of undertaking various cost reduction initiatives across all operations. These initiatives included removing excess capacity from manufacturing and distribution networks and scaling operations to match market supply and demand; implementation of these initiatives resulted in a reduction in staffing levels in all business segments over recent years. The Group expects that these provisions will be utilised within one to two years of the balance sheet date (2013: one to two years). (iv) This includes provisions relating to guarantees and warranties of €13 million (2013: €14 million) throughout the Group at 31 December 2014. The Group expects that these provisions will be utilised within two years of the balance sheet date (2013: two years). Discount rate sensitivity analysis All non-current provisions are discounted at a rate of 5% (2013: 5%), consistent with the average effective interest rate for the Group’s borrowings. There is €nil million impact (2013: €nil million) on profit before tax of a 1% change in the discount rate applicable to provisions, with all other variables held constant.
CRH 141 26. Deferred Income Tax
The deductible and taxable temporary differences in respect of which deferred tax has been recognised are as follows: 2014 2013 €m €m
Reported in balance sheet after offset Deferred tax liabilities 1,305 1,166 Deferred tax assets (171) (107) Net deferred income tax liability 1,134 1,059
Deferred income tax assets (deductible temporary differences) Deficits on Group retirement benefit obligations (note 27) 140 74 Revaluation of derivative financial instruments to fair value 14 15 Tax loss carryforwards 97 98 Share-based payment expense 2 2 Provisions for liabilities and working capital-related items 187 144 Other deductible temporary differences 37 38 Total 477 371
Deferred income tax assets have been recognised in respect of all deductible temporary differences, with the exception of some tax loss carryforwards. The amount of tax losses where recovery is not probable and is therefore not recognised in the Consolidated Balance Sheet is €937 million (2013: €712 million). The vast majority will expire post 2019 (2013: 2018).
Deferred income tax liabilities (taxable temporary differences) Taxable temporary differences principally attributable to accelerated tax depreciation and fair value adjustments arising on acquisition (i) 1,575 1,400 Revaluation of derivative financial instruments to fair value 18 13 Rolled-over capital gains 18 17 Total 1,611 1,430
(i) Fair value adjustments arising on acquisition principally relate to property, plant and equipment.
Movement in net deferred income tax liability At 1 January 1,059 1,041 Translation adjustment 125 (37) Net expense for the year (note 10) 36 4 Arising on acquisition (note 30) 2 8 Reclassified as held for sale (19) - Movement in deferred tax asset on Group retirement benefit obligations (69) 43 At 31 December 1,134 1,059
142 CRH 26. Deferred Income Tax 27. Retirement Benefit Obligations
The deductible and taxable temporary differences in respect of which deferred tax has been recognised are as follows: The Group operates either defined benefit or defined contribution pension schemes in all of its principal operating areas. The disclosures included below relate 2014 2013 to all pension schemes in the Group, including any schemes reclassified as held for sale. €m €m The Group operates defined benefit pension schemes in the Republic of Ireland, Britain and Northern Ireland, the Netherlands, Belgium, Germany, Switzerland and the United States; for the purposes of the disclosures which follow, the schemes in the Republic of Ireland, the Netherlands, Belgium and Germany have Reported in balance sheet after offset been aggregated into a “Eurozone” category on the basis of common currency and financial assumptions. The majority of the defined benefit pension schemes Deferred tax liabilities 1,305 1,166 operated by the Group are funded as disclosed in the analysis of the defined benefit obligation presented below with unfunded schemes restricted to one scheme Deferred tax assets (171) (107) in each of the Netherlands and the United States and three schemes in Germany. Net deferred income tax liability 1,134 1,059 All funded defined benefit schemes are administered by separate funds that are legally separate from the Group under the jurisdiction of Trustees. Each of the Group’s schemes operate under broadly similar regulatory frameworks. The Trustees of the various pension funds in existence across the Group are required by law Deferred income tax assets (deductible temporary differences) and by their Articles of Association to act in the best interests of the scheme participants and are responsible for the definition of investment strategy and for scheme Deficits on Group retirement benefit obligations (note 27) 140 74 administration. The level of benefits available to members depends on length of service and either their average salary over their period of employment or their salary Revaluation of derivative financial instruments to fair value 14 15 in the final years leading up to retirement. The Group’s pension schemes in Switzerland are contribution-based schemes with guarantees to provide further contributions in the event that certain targets are not met largely in relation to investment return and the annuity conversion factor on retirement. Tax loss carryforwards 97 98 Share-based payment expense 2 2 Provision has been made in the financial statements for post-retirement healthcare obligations in respect of certain current and former employees principally in the United States and for long-term service commitments in respect of certain employees in the Eurozone and Switzerland. These obligations are unfunded in Provisions for liabilities and working capital-related items 187 144 nature and the required disclosures form part of this note. Other deductible temporary differences 37 38 Defined benefit pension schemes - principal risks Total 477 371 Through its defined benefit pension schemes and post-retirement healthcare plans, the Group is exposed to a number of risks, the most significant of which Deferred income tax assets have been recognised in respect of all deductible temporary differences, with the exception of some tax loss carryforwards. The are detailed below: amount of tax losses where recovery is not probable and is therefore not recognised in the Consolidated Balance Sheet is €937 million (2013: €712 million). Asset volatility: Under IFRS, the assets of the Group’s defined benefit pension schemes are reported at fair value (using bid prices, where relevant). The The vast majority will expire post 2019 (2013: 2018). majority of the schemes’ assets comprise of equities, bonds and property all of which may fluctuate significantly in value from period to period. Given that liabilities are discounted to present value based on bond yields and that bond prices are inversely related to yields, an increase in the liability discount rate Deferred income tax liabilities (taxable temporary differences) (which would reduce liabilities) would reduce bond values though not necessarily by an equal magnitude. Taxable temporary differences principally attributable to accelerated tax depreciation and fair value adjustments arising on acquisition (i) 1,575 1,400 Given the maturity of certain of the Group’s funded defined benefit pension schemes, de-risking frameworks have been introduced to mitigate deficit volatility Revaluation of derivative financial instruments to fair value 18 13 and enable better matching of investment returns with the cash outflows related to benefit obligations. These frameworks entail the usage of asset-liability Rolled-over capital gains 18 17 matching techniques whereby triggers are set for the conversion of equity holdings into bonds of similar average duration to the relevant liabilities. Total 1,611 1,430 Discount rates: The discount rates employed in determining the present value of the schemes’ liabilities are determined by reference to market yields at the (i) Fair value adjustments arising on acquisition principally relate to property, plant and equipment. balance sheet date on high-quality corporate bonds of a currency and term consistent with the currency and term of the associated post-employment benefit obligations. Changes in discount rates impact the quantum of liabilities as discussed above. Movement in net deferred income tax liability Inflation risk: Some of the Group’s pension obligations have an inflation linkage; higher inflation will lead to higher liabilities (although in most cases, caps on At 1 January 1,059 1,041 the level of inflationary increases are in place to protect the scheme against extreme inflation). Translation adjustment 125 (37) Longevity risk: In the majority of cases, the Group’s defined benefit pension schemes provide benefits for life with spousal and dependent child reversionary Net expense for the year (note 10) 36 4 provisions; increases in life expectancy will therefore give rise to higher liabilities. Arising on acquisition (note 30) 2 8 Financial assumptions - scheme liabilities Reclassified as held for sale (19) - The major long-term assumptions used by the Group’s actuaries in the computation of scheme liabilities as at 31 December 2014 and 31 December 2013 are Movement in deferred tax asset on Group retirement benefit obligations (69) 43 as follows: At 31 December 1,134 1,059 Britain and Eurozone Northern Ireland Switzerland United States 2014 2013 2014 2013 2014 2013 2014 2013 % % % % % % % % Rate of increase in: - salaries 3.75 4.00 4.00 4.30 2.25 2.25 3.50 3.50 - pensions in payment 1.75 2.00 3.00-3.20 3.00-3.50 - 0.25 - - Inflation 1.75 2.00 3.00 3.30 1.25 1.25 2.00 2.00 Discount rate 2.00 3.70 3.50 4.60 1.15 2.35 3.80 4.70 Medical cost trend rate n/a n/a n/a n/a n/a n/a 16.70 7.40 The mortality assumptions employed in determining the present value of scheme liabilities under IAS 19 Employee Benefits are in accordance with the underlying funding valuations and represent actuarial best practice in the relevant jurisdictions taking account of mortality experience and industry circumstances. With regard to the most material of the Group’s schemes, the future life expectations factored into the relevant valuations, based on retirement at 65 years of age for current and future retirees, are as follows: Republic of Britain and Ireland Northern Ireland Switzerland 2014 2013 2014 2013 2014 2013 Current retirees - male 22.8 22.7 23.2 23.2 21.3 21.3 - female 24.9 24.9 25.8 25.7 23.8 23.8
Future retirees - male 25.8 25.7 25.6 25.5 23.5 23.5 - female 26.8 26.7 28.2 28.2 25.9 25.9
The above data allow for future improvements in life expectancy.
CRH 143 27. Retirement Benefit Obligations | continued
Impact on Consolidated Income Statement The total retirement benefit expense in the Consolidated Income Statement is as follows:
2014 2013 €m €m
Total defined contribution expense 152 149 Total defined benefit expense 63 52 Total expense in Consolidated Income Statement 215 201
At 31 December 2014, €44 million (2013: €34 million) was included in other payables in respect of defined contribution pension liabilities.
Analysis of defined benefit expense Britain and Eurozone Northern Ireland Switzerland United States Total Group 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m €m €m €m €m
Charged in arriving at Group profit before finance costs: Current service cost 11 11 14 13 24 27 2 - 51 51 Administration expenses 1 1 2 1 - 1 - - 3 3 Past service costs (5) (6) - (3) - (15) - - (5) (24) 7 6 16 11 24 13 2 - 49 30
Included in finance income and finance costs respectively: Interest income on scheme assets (29) (27) (31) (26) (16) (12) (9) (6) (85) (71) Interest cost on scheme liabilities 37 39 34 30 17 14 11 10 99 93 Net interest expense 8 12 3 4 1 2 2 4 14 22 Net charge to Consolidated Income Statement 15 18 19 15 25 15 4 4 63 52
Past service costs also include curtailment and settlement gains. During 2014, there were no significant curtailment or settlement gains (2013: curtailment gain of €15 million). The prior year curtailment gain arose due to the implementation of changes to the terms of a number of the Group’s defined benefit pension schemes in Switzerland. No reimbursement rights have been recognised as assets in accordance with IAS 19.
Reconciliation of scheme assets (bid value)
At 1 January 790 710 662 597 683 661 179 174 2,314 2,142 Movement in year Administration expenses (1) (1) (2) (1) - (1) - - (3) (3) Interest income on scheme assets 29 27 31 26 16 12 9 6 85 71 Remeasurement adjustments - return on scheme assets excluding interest income 87 30 54 44 34 25 4 9 179 108 Employer contributions paid 72 70 19 28 17 17 7 9 115 124 Contributions paid by plan participants 3 3 - - 10 10 - - 13 13 Benefit and settlement payments (45) (49) (25) (21) (30) (31) (14) (11) (114) (112) Reclassified as held for sale - - (633) - - - - - (633) - Translation adjustment - - 49 (11) 15 (10) 26 (8) 90 (29) At 31 December 935 790 155 662 745 683 211 179 2,046 2,314
144 CRH 27. Retirement Benefit Obligations | continued
Reconciliation of actuarial value of liabilities Britain and Eurozone Northern Ireland Switzerland United States Total Group 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m €m €m €m €m
At 1 January (1,045) (1,054) (723) (705) (727) (765) (229) (271) (2,724) (2,795) Movement in year Current service cost (11) (11) (14) (13) (24) (27) (2) - (51) (51) Past service costs 5 6 - 3 - 15 - - 5 24 Interest cost on scheme liabilities (37) (39) (34) (30) (17) (14) (11) (10) (99) (93) Remeasurement adjustments - experience variations 20 23 1 2 7 17 - - 28 42 - actuarial (loss)/gain from changes in financial assumptions (306) (16) (129) (13) (142) 64 (27) 30 (604) 65 - actuarial loss from changes in demographic assumptions - - - (2) - (51) (17) - (17) (53) Contributions paid by plan participants (3) (3) - - (10) (10) - - (13) (13) Benefit and settlement payments 45 49 25 21 30 31 14 11 114 112 Reclassified as held for sale - - 714 - - - - - 714 - Translation adjustment - - (56) 14 (17) 13 (37) 11 (110) 38 At 31 December (1,332) (1,045) (216) (723) (900) (727) (309) (229) (2,757) (2,724)
Recoverable deficit in schemes (397) (255) (61) (61) (155) (44) (98) (50) (711) (410) Related deferred income tax asset 59 39 12 6 30 9 39 20 140 74 Net pension liability (338) (216) (49) (55) (125) (35) (59) (30) (571) (336)
During the year, there were no settlement payments (2013: €11 million) made in respect of the Group’s schemes.
Split of scheme liabilities - funded and unfunded
Funded defined benefit pension schemes (1,274) (999) (930) (723) (894) (722) (297) (219) (3,395) (2,663) Unfunded defined benefit pension schemes (52) (40) - - - - (8) (7) (60) (47) Total - defined benefit pension schemes (1,326) (1,039) (930) (723) (894) (722) (305) (226) (3,455) (2,710) Post-retirement healthcare obligations (unfunded) ------(4) (3) (4) (3) Long-term service commitments (unfunded) (6) (6) - - (6) (5) - - (12) (11) Actuarial value of liabilities (present value) (1,332) (1,045) (930) (723) (900) (727) (309) (229) (3,471) (2,724) Reclassified as held for sale - - 714 - - - - - 714 - Actuarial value of liabilities (present value) excluding schemes reclassified as held for sale (1,332) (1,045) (216) (723) (900) (727) (309) (229) (2,757) (2,724)
Sensitivity analysis The impact of a movement (as indicated below) in the principal actuarial assumptions would be as follows:
Britain and Northern United Total Eurozone Ireland Switzerland States Group 2014 2014 2014 2014 2014 €m €m €m €m €m
Scheme liabilities at 31 December 2014 (1,332) (930) (900) (309) (3,471)
Revised liabilities Discount rate Decrease by 0.25% (1,398) (979) (941) (320) (3,638) Inflation rate Increase by 0.25% (1,394) (965) (900) (309) (3,568) Life expectancy Increase by 1 year (1,376) (963) (921) (319) (3,579)
The above sensitivity analysis is derived through changing the individual assumption while holding all other assumptions constant.
CRH 145 27. Retirement Benefit Obligations | continued
Split of scheme assets Britain and Eurozone Northern Ireland Switzerland United States Total Group 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m €m €m €m €m Investments quoted in active markets Equity instruments: - Developed markets 281 262 329 340 260 229 69 92 939 923 - Emerging markets 10 12 55 53 - - - - 65 65 Debt instruments: - Non Government debt instruments 279 29 166 139 226 210 59 26 730 404 - Government debt instruments 265 390 165 69 65 58 67 51 562 568 Property 37 29 41 43 31 68 - - 109 140 Cash and cash equivalents 16 47 2 1 - 2 16 4 34 54 Investment funds 24 12 17 9 - - - 6 41 27 Assets held by insurance company - - - - - 5 - - - 5
Unquoted investments Equity instruments: - Developed markets - - - - 1 - - - 1 - - Emerging markets - - 6 - - - - - 6 - Debt instruments: - Non Government debt instruments - - - - 2 - - - 2 - Property 3 2 - - 97 68 - - 100 70 Cash and cash equivalents 17 4 7 2 44 31 - - 68 37 Investment funds - - - 6 - - - - - 6 Assets held by insurance company 3 3 - - 19 12 - - 22 15 Total assets 935 790 788 662 745 683 211 179 2,679 2,314 Reclassified as held for sale - - (633) - - - - - (633) - Total excluding schemes reclassified as held for sale 935 790 155 662 745 683 211 179 2,046 2,314
Actuarial valuations - funding requirements and future cash flows In accordance with statutory requirements in Ireland and Britain (minimum funding requirements), additional annual contributions and lump-sum payments are required to certain of the schemes in place in those jurisdictions. The funding requirements in relation to the Group’s defined benefit schemes are assessed in accordance with the advice of independent and qualified actuaries and valuations are prepared in this regard either annually, where local requirements mandate that this be done, or at triennial intervals at a maximum in all other cases. In Ireland and Britain, either the attained age or projected unit credit methods are used in the valuations. In the Netherlands and Switzerland, the actuarial valuations reflect the current unit method, while the valuations are performed in accordance with the projected unit credit methodology in Germany. In the United States, valuations are performed using a variety of actuarial cost methodologies - current unit, projected unit and aggregate cost. The dates of the actuarial valuations range from April 2011 to January 2014. In general, actuarial valuations are not available for public inspection; however, the results of valuations are advised to the members of the various schemes on request. The maturity profile of the Group’s contracted payments (on a discounted basis) to certain schemes in the Eurozone (Ireland) and Britain and Northern Ireland is as follows: Britain and Eurozone Northern Ireland Total 2014 2013 2014 2013 2014 2013 €m €m €m €m €m €m Within one year 18 18 8 7 26 25 Between one and two years 17 17 8 7 25 24 Between two and three years 17 16 7 7 24 23 Between three and four years 17 16 7 6 24 22 Between four and five years - 15 7 6 7 21 After five years - - 48 47 48 47 69 82 85 80 154 162 Total contracted payments disclosed above include commitments of €65 million in relation to schemes reclassified as held for sale. Employer contributions payable in the 2015 financial year including minimum funding payments (expressed using year-end exchange rates for 2014) are estimated at €191 million of which €96 million relates to schemes reclassified as held for sale. Average duration and scheme composition Britain and United Eurozone Northern Ireland Switzerland States 2014 2013 2014 2013 2014 2013 2014 2013
Average duration of defined benefit obligation (years) 16.0 15.9 17.5 18.1 16.0 16.0 12.0 13.3
Allocation of defined benefit obligation by participant: Active plan participants 37% 39% 27% 27% 85% 86% 35% 36% Deferred plan participants 21% 20% 34% 34% - - 30% 30% Retirees 42% 41% 39% 39% 15% 14% 35% 34%
146 CRH 28. Share Capital and Reserves
Equity Share Capital 2014 2013 Ordinary Income Ordinary Income Shares of Shares of Shares of Shares of €0.32 each (i) €0.02 each (ii) €0.32 each (i) €0.02 each (ii)
Authorised At 1 January 2014 and 31 December 2014 (€m) 320 20 320 20
Number of Shares at 1 January 2014 and 31 December 2014 ('000s) 1,000,000 1,000,000 1,000,000 1,000,000
Allotted, called-up and fully paid At 1 January (€m) 237 14 235 14 Issue of scrip shares in lieu of cash dividends (iii) 2 - 2 - At 31 December (€m) 239 14 237 14
The movement in the number of shares (expressed in ‘000s) during the financial year was as follows:
At 1 January 739,231 739,231 733,821 733,821 Issue of scrip shares in lieu of cash dividends (iii) 5,294 5,294 5,410 5,410 At 31 December 744,525 744,525 739,231 739,231
(i) The Ordinary Shares represent 93.68% of the total issued share capital.
(ii) The Income Shares, which represent 5.85% of the total issued share capital, were created on 29 August 1988 for the express purpose of giving shareholders the choice of receiving dividends on either their Ordinary Shares or on their Income Shares (by notice of election to the Company). The Income Shares carried a different tax credit to the Ordinary Shares. The creation of the Income Shares was achieved by the allotment of fully paid Income Shares to each shareholder equal to his/her holding of Ordinary Shares but the shareholder is not entitled to an Income Share certificate, as a certificate for Ordinary Shares is deemed to include an equal number of Income Shares and a shareholder may only sell, transfer or transmit Income Shares with an equivalent number of Ordinary Shares. Income Shares carry no voting rights. Due to changes in Irish tax legislation since the creation of the Income Shares, dividends on the Company’s shares no longer carry a tax credit. As elections made by shareholders to receive dividends on their holding of Income Shares were no longer relevant, the Articles of Association were amended on 8 May 2002 to cancel such elections.
Share schemes The aggregate number of shares which may be committed for issue in respect of any share option scheme, savings-related share option scheme, share participation scheme, performance share plan or any subsequent option scheme or share plan, may not exceed 10% of the issued ordinary share capital from time to time. Share option schemes Details of share options granted under the Company’s share option schemes and the terms attaching thereto are provided in note 7 to the financial statements and on page 76 of the Directors’ Remuneration Report. Number of Shares 2014 2013 Options exercised during the year (satisfied by the reissue of Treasury Shares) 1,307,406 1,310,187
Share participation schemes As at 31 December 2014, 7,509,125 (2013: 7,386,047) Ordinary Shares had been appropriated to participation schemes. In the financial year ended 31 December 2014, the appropriation of 123,078 shares was satisfied by the reissue of Treasury Shares (2013: 113,415). The Ordinary Shares appropriated pursuant to these schemes were issued at market value on the dates of appropriation. The shares issued pursuant to these schemes are excluded from the scope of IFRS 2 Share- based Payment and are hence not factored into the expense computation and the associated disclosures in note 7. Performance Share Plan During the year, 742,604 Ordinary Shares were acquired by the Employee Benefit Trust by way of the reissue of Treasury Shares by CRH plc to satisfy the release of shares in respect of the 2011 award under the 2006 Performance Share Plan. Restricted Share Plan During 2013, the Employee Benefit Trust purchased 391,250 shares on behalf of CRH plc in respect of awards under the 2013 Restricted Share Plan. There were no such purchases in 2014. The nominal value of own shares, on which dividends have been waived by the Trustees of the 2013 Restricted Share Plan, amounted to €0.1 million at 31 December 2014 (2013: €0.1 million).
(iii) Issue of scrip shares in lieu of cash dividends: Number of Shares Price per Share 2014 2013 2014 2013 May 2014 - Final 2013 dividend (2013: Final 2012 dividend) 4,081,636 2,011,165 €20.99 €17.01 October 2014 - Interim 2014 dividend (2013: Interim 2013 dividend) 1,212,700 3,398,992 €17.81 €15.79 Total 5,294,336 5,410,157
CRH 147 28. Share Capital and Reserves | continued
5% Cumulative 7% ‘A’ Cumulative Preference Shares of Preference Shares of Preference Share Capital €1.27 each (iv) €1.27 each (v) Number of Number of Shares ‘000s €m Shares ‘000s €m
Authorised At 1 January 2014 and 31 December 2014 150 - 872 1 Allotted, called-up and fully paid At 1 January 2014 and 31 December 2014 50 - 872 1
There was no movement in the number of cumulative preference shares in either the current or the prior year. (iv) The holders of the 5% Cumulative Preference Shares are entitled to a fixed cumulative preference dividend at a rate of 5% per annum and priority in a winding-up to repayment of capital, but have no further right to participate in profits or assets and are not entitled to be present or vote at general meetings unless their dividend is in arrears. Dividends on the 5% Cumulative Preference Shares are payable half-yearly on 15 April and 15 October in each year. The 5% Cumulative Preference Shares represent 0.03% of the total issued share capital. (v) The holders of the 7% ‘A’ Cumulative Preference Shares are entitled to a fixed cumulative preference dividend at a rate of 7% per annum, and subject to the rights of the holders of the 5% Cumulative Preference Shares, priority in a winding-up to repayment of capital, but have no further right to participate in profits or assets and are not entitled to be present or vote at general meetings unless their dividend is in arrears or unless the business of the meeting includes certain matters, which are specified in the Articles of Association. Dividends on the 7% ‘A’ Cumulative Preference Shares are payable half-yearly on 5 April and 5 October in each year. The 7% ‘A’ Cumulative Preference Shares represent 0.44% of the total issued share capital.
Treasury Shares/own shares 2014 2013 €m €m
At 1 January (118) (146) Treasury Shares/own shares reissued 42 34 Shares acquired by Employee Benefit Trust (own shares) - (6) At 31 December (76) (118) As at the balance sheet date, the total number of Treasury Shares held was 3,775,455 (2013: 5,951,104); the nominal value of these shares was €1 million (2013: €2 million). During the year ended 31 December 2014, 1,430,484 (2013: 1,423,602) shares were reissued to satisfy exercises and appropriations under the Group’s share option and share participation schemes and 2,561 (2013: nil) shares were reissued to satisfy deferred share awards. In addition, 742,604 (2013: nil) shares were reissued to the CRH plc Employee Benefit Trust in connection with the release of the award under the 2006 Performance Share Plan. These reissued Treasury Shares were previously purchased at an average price of €19.40 (2013: €24.08). No Treasury Shares were purchased during 2014 or 2013. Reconciliation of shares issued to net proceeds Shares issued at nominal amount: - scrip shares issued in lieu of cash dividends 2 2 Premium on shares issued 105 86 Total value of shares issued 107 88 Issue of scrip shares in lieu of cash dividends (note 11) (107) (88) Net proceeds from issue of shares - -
Share Premium At 1 January 4,219 4,133 Premium arising on shares issued 105 86 At 31 December 4,324 4,219
29. Commitments under Operating and Finance Leases
Operating leases Future minimum rentals payable under non-cancellable operating leases at 31 December are as follows: 2014 2013 €m €m Within one year 310 301 After one year but not more than five years 663 596 More than five years 417 357 1,390 1,254
Total operating lease commitments disclosed above include commitments of €54 million in relation to businesses classified as held for sale. Finance leases Future minimum lease payments under finance leases are not material for the Group.
148 CRH 30. Business Combinations
The principal acquisitions completed during the year ended 31 December 2014 by reportable segment, together with the completion dates, are detailed below; these transactions entailed the acquisition of an effective 100% stake except where indicated to the contrary: Europe Heavyside: Denmark: selected assets of a precast concrete business (11 August); Ireland: selected assets of Cemex Ireland (31 August). Europe Distribution: Belgium: Heumatop (24 March), Costermans (2 July) and Van Den Broeck (17 July); France: assets of two Toute Faire Materiaux branches (1 April); the Netherlands: Hoogeveen branch of Kroon Bouwcenter (9 April). Americas Materials: Iowa: Shipley Contracting asphalt plant and paving assets (6 June); Kentucky: selected assets of MAC Construction & Excavating (5 November); Maine: Marriner quarry (10 April) and selected assets of Lane Construction (26 September); Texas: selected assets of Capitol Aggregates (6 May); Virginia: Kendrick reserves (6 August); Washington: asphalt assets of Eucon Corporation in Spokane (15 December); West Virginia: assets of Yellowstar Materials (7 January). Americas Products: California: assets of Kristar Enterprises (6 January); North and South Carolina: concrete pipe assets of MC Precast (19 May); Iowa: Thermomass (10 September); Texas: assets of Hope Agri Products (20 February, also Arkansas, Louisiana and Oklahoma) and assets of Ashley Concrete (19 May).
The identifiable net assets acquired, including adjustments to provisional fair values, were as follows: 2014 2013 €m €m Assets Non-current assets Property, plant and equipment 91 342 Intangible assets 16 39 Equity accounted investments - 2 Total non-current assets 107 383
Current assets Inventories 23 41 Trade and other receivables (i) 20 53 Cash and cash equivalents 1 11 Total current assets 44 105
Liabilities Trade and other payables (17) (80) Provisions for liabilities (stated at net present cost) (1) (14) Interest-bearing loans and borrowings and finance leases (7) (44) Deferred income tax liabilities (2) (8) Total liabilities (27) (146)
Total identifiable net assets at fair value 124 342 Goodwill arising on acquisition (ii) 31 169 Excess of fair value of identifiable net assets over consideration paid (ii) - (2) Non-controlling interests* - (1) Total consideration 155 508
Consideration satisfied by: Cash payments 152 347 Asset exchange (note 4) - 144 Deferred consideration (stated at net present cost) 1 4 Contingent consideration (iii) 2 13 Total consideration 155 508
* Measured at the non-controlling interests’ proportionate share of the acquiree’s identifiable net assets.
Net cash outflow arising on acquisition Cash consideration 152 347 Less: cash and cash equivalents acquired (1) (11) Total 151 336
CRH 149 30. Business Combinations | continued
None of the acquisitions completed during the financial year were considered sufficiently material to warrant separate disclosure of the attributable fair values. The initial assignment of fair values to identifiable net assets acquired has been performed on a provisional basis in respect of certain acquisitions; any amendments to these fair values made during the subsequent reporting window (within the measurement period imposed by IFRS 3 Business Combinations) will be subject to subsequent disclosure.
(i) The gross contractual value of trade and other receivables as at the respective dates of acquisition amounted to €22 million (2013: €57 million). The fair value of these receivables is €20 million (all of which is expected to be recoverable) (2013: €53 million) and is inclusive of an aggregate allowance for impairment of €2 million (2013: €4 million).
(ii) The principal factor contributing to the recognition of goodwill on acquisitions entered into by the Group is the realisation of cost savings and other synergies with existing entities in the Group which do not qualify for separate recognition as intangible assets. Due to the asset-intensive nature of operations in the Europe Heavyside and Americas Materials business segments, no significant intangible assets are recognised on business combinations in these segments. €18 million of the goodwill recognised in respect of acquisitions completed in 2014 is expected to be deductible for tax purposes (2013: €49 million). No excess of fair value of identifiable net assets over consideration arose during the year (2013: €2 million).
(iii) The fair value of contingent consideration recognised is €2 million (including adjustments to prior year acquisitions of €1 million). On an undiscounted basis, the corresponding future payments on current year acquisitions for which the Group may be liable range from €nil million to a maximum of €1 million. Acquisition-related costs amounting to €2 million (2013: €2 million) have been included in operating costs in the Consolidated Income Statement (note 2). No contingent liabilities were recognised on the acquisitions completed during the financial year or the prior financial year. The carrying amounts of the assets and liabilities acquired determined in accordance with IFRS before completion of the acquisition, together with the adjustments made to those carrying values to arrive at the fair values disclosed above, were as follows:
Accounting Adjustments Book Fair value policy to provisional Fair values adjustments alignments fair values value €m €m €m €m €m
Non-current assets 95 11 - 1 107 Current assets 45 (3) - 2 44 Liabilities (22) (2) - (3) (27) Identifiable net assets acquired 118 6 - - 124 Goodwill arising on acquisition (see (ii) above) 38 (5) - (2) 31 Total consideration 156 1 - (2) 155
The following table analyses the 21 acquisitions (2013: 25 acquisitions) by reportable segment and provides details of the goodwill and consideration figures arising in each of those segments: Number of Reportable segments acquisitions Goodwill Consideration 2014 2013 2014 2013 2014 2013 €m €m €m €m
Europe Heavyside 2 6 2 80 7 265 Europe Lightside ------Europe Distribution 6 3 9 10 20 15 Europe 8 9 11 90 27 280
Americas Materials 8 9 5 19 71 76 Americas Products 5 4 17 48 59 124 Americas Distribution - 3 - 8 - 22 Americas 13 16 22 75 130 222 Total Group 21 25 33 165 157 502 Adjustments to provisional fair values of prior year acquisitions (2) 4 (2) 6 Total 31 169 155 508
150 CRH 30. Business Combinations | continued
The post-acquisition impact of acquisitions completed during the year on the Group’s profit/(loss) for the financial year was as follows: 2014 2013 €m €m Revenue 122 306 Cost of sales (89) (232) Gross profit 33 74 Operating costs (26) (63) Group operating profit 7 11 Profit on disposals - - Profit before finance costs 7 11 Finance costs (net) - (3) Profit before tax 7 8 Income tax expense (2) (2) Group profit for the financial year 5 6
The revenue and profit/(loss) of the Group for the financial year determined in accordance with IFRS as though the acquisitions effected during the year had been at the beginning of the year would have been as follows: Pro-forma 2014 Pro-forma 2014 CRH Group excluding consolidated Pro-forma acquisitions 2014 acquisitions Group 2013 €m €m €m €m Revenue 182 18,790 18,972 18,159 Group profit/(loss) for the financial year 7 579 586 (300)
There have been no acquisitions completed subsequent to the balance sheet date which would be individually material to the Group, thereby requiring disclosure under either IFRS 3 or IAS 10 Events after the Balance Sheet Date. Details of events after the balance sheet date are set out in note 33. Development updates, giving details of acquisitions which do not require separate disclosure on the grounds of materiality, are typically published in January and July each year.
CRH 151 31. Related Party Transactions
The principal related party relationships requiring disclosure in the Consolidated Financial Statements of the Group under IAS 24 Related Party Disclosures pertain to: the existence of subsidiaries, joint ventures and associates; transactions with these entities entered into by the Group; and the identification and compensation of key management personnel. Subsidiaries, joint ventures and associates The Consolidated Financial Statements include the financial statements of the Company (CRH plc, the ultimate parent) and its subsidiaries, joint ventures and associates as documented in the accounting policies on pages 108 to 114. The Group’s principal subsidiaries, joint ventures and associates are disclosed on pages 162 to 166. Sales to and purchases from joint ventures are immaterial in 2014 and 2013. Loans extended by the Group to joint ventures and associates (see note 15) are included in financial assets. Sales to and purchases from associates during the financial year ended 31 December 2014 amounted to €33 million (2013: €24 million) and €411 million (2013: €411 million) respectively. Amounts receivable from and payable to equity accounted investments (arising from the aforementioned sales and purchases transactions) as at the balance sheet date are included as separate line items in notes 17 and 18 to the Consolidated Financial Statements. Terms and conditions of transactions with subsidiaries, joint ventures and associates In general, the transfer pricing policy implemented by the Group across its subsidiaries is market-based. Sales to and purchases from joint ventures and associates are conducted in the ordinary course of business and on terms equivalent to those that prevail in arm’s-length transactions. The outstanding balances included in receivables and payables as at the balance sheet date in respect of transactions with joint ventures and associates are unsecured and settlement arises in cash. No guarantees have been either requested or provided in relation to related party receivables and payables. Loans to joint ventures and associates (as disclosed in note 15) are extended on normal commercial terms in the ordinary course of business with interest accruing and, in general, paid to the Group at predetermined intervals. Key management personnel For the purposes of the disclosure requirements of IAS 24, the term “key management personnel” (i.e. those persons having authority and responsibility for planning, directing and controlling the activities of the Company) comprises the Board of Directors which manages the business and affairs of the Company.
Key management remuneration amounted to: 2014 2013 €m €m Short-term benefits 9 7 Post-employment benefits 1 2 Share-based payments - calculated in accordance with the principles disclosed in note 7 2 2 Total 12 11 Other than these compensation entitlements, there were no other transactions involving key management personnel.
32. Contingent Liabilities
On 30 May 2014 CRH announced that the secretariat of the Competition Commission in Switzerland had invited CRH’s Swiss subsidiaries BR Bauhandel AG, Gétaz-Miauton SA and Regusci Reco SA, to comment on a proposal to impose sanctions on the Association of Swiss Wholesalers of the Sanitary Industry and all other major Swiss wholesalers, including CRH’s subsidiaries, regarding the pending investigation into the sanitary (bathroom fixtures and fittings) industry in Switzerland. The secretariat alleges competition law infringements and proposes a total fine of approximately CHF 283 million on all parties, of which approximately CHF 119 million (€99 million) is attributable to CRH’s Swiss subsidiaries, based on Swiss turnover. CRH believes that the position of the secretariat is fundamentally ill-founded and views the proposed fine as unjustified. The Group has made submissions to this effect to the Competition Commission. Any decision of the Competition Commission on this matter is not expected before April 2015. Any decision finding an infringement can be appealed to the Federal Administrative Tribunal, and ultimately to the Federal Supreme Court. No provision has been made in respect of this proposed fine in the 2014 Consolidated Financial Statements.
152 CRH 33. Events after the Balance Sheet Date
On 1 February 2015, CRH announced that it had made a binding irrevocable offer to acquire certain of the businesses and assets of Lafarge S.A. (‘Lafarge’) and Holcim Limited (‘Holcim’ and together with Lafarge the ‘Sellers’) comprising a global portfolio of assets in the building materials industry (which are complementary to CRH’s footprint) for an enterprise value of €6.5 billion (based on exchange rates at 30 January 2015). The consideration will be paid in a combination of euro, Sterling and Canadian Dollars. The proposed acquisition constitutes a Class 1 transaction under the UKLA Listing Rules and therefore requires the approval of a simple majority of CRH’s shareholders. An Extraordinary General Meeting (‘EGM’) will be held on 19 March 2015 to seek shareholder approval of the acquisition. If the acquisition is not approved by CRH’s shareholders at the EGM, a termination fee of approximately €158 million in total will be payable by CRH to the Sellers. A termination fee of approximately €158 million will be payable by the Sellers to CRH in either of the following circumstances: 1) if the Sellers do not accept CRH’s offer; or 2) if the proposed merger of Lafarge and Holcim (the ‘Merger’) does not proceed to successful completion. The acquisition is also conditional upon: 1) the successful completion of the Merger; and 2) the completion of certain local reorganisations that need to take place before completion of the acquisition. In addition, CRH has committed to the Sellers that it will take all steps and do all things necessary to obtain regulatory approvals required in relation to the acquisition. The long stop date for completion of the acquisition is the earlier of: 1) three months following completion of the Merger; or 2) 31 December 2015, but in any case no earlier than 31 August 2015. In connection with the proposed acquisition, CRH completed a placing of 74,039,915 new ordinary shares raising gross proceeds of approximately €1.6 billion, and representing approximately 9.99% of CRH’s issued ordinary share capital before the placing. Closing of the placing and admission of the placing shares to the official lists and to trading on the main markets of the London Stock Exchange and Irish Stock Exchange took place on 5 February 2015. On 1 February 2015, CRH agreed a €6.5 billion senior unsecured bridge loan facility which has subsequently been reduced by €1.6 billion to reflect the proceeds of the placing and by a further €2.0 billion to reflect other cash balances which are intended to fund the acquisition. The remaining €2.9 billion of the loan facilities are available to be used to complete the debt-funded portion of the proposed acquisition. Subject to certain carve- outs, the facilities contain provisions requiring mandatory prepayment from disposal proceeds and the proceeds of capital market transactions. Other terms and conditions are otherwise substantially similar to CRH’s existing €2.5 billion revolving credit facility dated 11 June 2014.
34. Board Approval
The Board of Directors approved and authorised for issue the financial statements on pages 104 to 153 in respect of the year ended 31 December 2014 on 25 February 2015.
CRH 153 Company Balance Sheet as at 31 December 2014
2014 2013 €m €m Notes Fixed assets 2 Financial assets 595 581
Current assets 3 Debtors 5,532 6,394 Cash at bank and in hand 1,411 175 Total current assets 6,943 6,569
Creditors (amounts falling due within one year) 4 Trade and other creditors 1,003 1,453 Bank loans and overdrafts 2 57 Total current liabilities 1,005 1,510
Net current assets 5,938 5,059
Net assets 6,533 5,640
Capital and reserves 7 Called-up share capital 253 251 7 Preference share capital 1 1 8 Share premium account 4,328 4,223 8 Treasury Shares and own shares (76) (118) 8 Revaluation reserve 42 42 8 Other reserves 203 187 8 Profit and loss account 1,782 1,054 Shareholders' funds 6,533 5,640
N. Hartery, A. Manifold, Directors
154 CRH Notes to the Company Balance Sheet
1. Accounting Policies Basis of accounting The financial statements have been prepared under the historical cost convention in accordance with the Companies Acts, 1963 to 2013 and Generally Accepted Accounting Practice in the Republic of Ireland (“Irish GAAP”). The following paragraphs describe the principal accounting policies under Irish GAAP, which have been applied consistently.
Operating income and expense Operating income and expense arises from the Company’s principal activities as a holding company for the Group and are accounted for on an accruals basis.
Financial assets Fixed asset investments, including investments in subsidiaries, are stated at cost (and at valuation at 31 December 1980 for those investments in existence at that date) less any accumulated impairments and are reviewed for impairment if there are indications that the carrying value may not be recoverable.
Foreign currencies The reporting currency of the Company is euro. Transactions in foreign currencies are translated at the rates of exchange ruling at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at the balance sheet date, with a corresponding charge or credit to the profit and loss account.
Share issue expenses and share premium account Costs of share issues are written-off against the premium arising on issues of share capital.
Share-based payments The Company has applied the requirements of FRS 20 Share-based Payment. The accounting policy applicable to share-based payments is consistent with that applied under IFRS and is accordingly addressed in detail on pages 111 and 112 of the Consolidated Financial Statements.
Cash flow statement The Company has taken advantage of the exemption afforded by FRS 1 Cash Flow Statements not to provide a statement of cash flows.
Treasury Shares and own shares Treasury Shares Own equity instruments (i.e. Ordinary Shares) acquired by the Company are deducted from equity and presented on the face of the Company Balance Sheet. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s Ordinary Shares. Own shares Ordinary Shares purchased by the Employee Benefit Trust on behalf of the Company under the terms of the Performance Share Plan are recorded as a deduction from equity on the face of the Company Balance Sheet.
Dividends Dividends on Ordinary Shares are recognised as a liability in the Company’s Financial Statements in the period in which they are declared by the Company.
CRH 155 2. Financial Assets
The Company’s investment in its subsidiaries is as follows: Shares (i) Other Total €m €m €m
At 1 January 2014 at cost/valuation 400 181 581 Capital contribution in respect of share-based payments - 14 14 At 31 December 2014 at cost/valuation 400 195 595
The equivalent disclosure for the prior year is as follows:
At 1 January 2013 at cost/valuation 371 167 538 Capital contribution in respect of share-based payments - 14 14 Additions 29 - 29 At 31 December 2013 at cost/valuation 400 181 581
(i) The Company’s investment in shares in its subsidiaries was revalued at 31 December 1980 to reflect the surplus on revaluation of certain property, plant and equipment (land and buildings) of subsidiaries. The original historical cost of the shares equated to approximately €9 million. The analysis of the closing balance between amounts carried at valuation and at cost is as follows:
2014 2013 €m €m
At valuation 31 December 1980 47 47 At cost post 31 December 1980 353 353 Total 400 400
Pursuant to Section 16 of the Companies (Amendment) Act, 1986, a full list of subsidiaries, joint ventures and associated undertakings will be annexed to the Company’s Annual Return to be filed in the Companies Registration Office in Ireland.
3. Debtors 2014 2013 €m €m
Amounts owed by subsidiary undertakings 5,532 6,394
4. Trade and Other Creditors 2014 2013 €m €m
Amounts falling due within one year Amounts owed to subsidiary undertakings 1,003 1,453
5. Auditor’s Remuneration (Memorandum Disclosure) In accordance with Section 161D of the Companies Act, 1963, the fees paid in 2014 to the statutory auditor for work engaged by the Parent Company comprised audit fees of €20,000 (2013: €20,000) and other assurance services of €118,000 (2013: €60,000).
6. Dividends Proposed (Memorandum Disclosure) Details in respect of dividends proposed of €359 million (2013: €323 million) are presented in the dividends note (note 11) on page 126 of the notes to the Consolidated Financial Statements.
7. Called-up Share Capital Details in respect of called-up share capital, Treasury Shares and own shares are presented in the share capital and reserves note (note 28) on pages 147 and 148 of the notes to the Consolidated Financial Statements.
156 CRH 8. Movement in Shareholders’ Funds
Issued Share Treasury Profit share premium Shares/ Revaluation Other and loss Total capital account own shares reserve reserves account equity €m €m €m €m €m €m €m
At 1 January 2014 252 4,223 (118) 42 187 1,054 5,640 Issue of share capital (net of expenses) 2 105 - - - - 107 Profit after tax before dividends - - - - - 1,208 1,208 Treasury/own shares reissued - - 42 - - (42) - Share option exercises - - - - - 22 22 Share-based payment expense - - - - 16 - 16 Dividends (including shares issued in lieu of dividends) - - - - - (460) (460) At 31 December 2014 254 4,328 (76) 42 203 1,782 6,533
The equivalent disclosure for the prior year is as follows:
At 1 January 2013 250 4,137 (146) 42 172 1,521 5,976 Issue of share capital (net of expenses) 2 86 - - - - 88 Profit after tax before dividends - - - - - 3 3 Treasury/own shares reissued - - 34 - - (34) - Shares acquired by Employee Benefit Trust (own shares) - - (6) - - - (6) Share option exercises - - - - - 19 19 Share-based payment expense - - - - 15 - 15 Dividends (including shares issued in lieu of dividends) - - - - - (455) (455) At 31 December 2013 252 4,223 (118) 42 187 1,054 5,640
In accordance with Section 148(8) of the Companies Act, 1963 and Section 7(1A) of the Companies (Amendment) Act, 1986, the Company is availing of the exemption from presenting its individual profit and loss account to the Annual General Meeting and from filing it with the Registrar of Companies in the Republic of Ireland. The profit for the financial year dealt with in the Company Financial Statements amounted to €1,208 million (2013: €3 million).
9. Share-based Payments The total expense of €16 million (2013: €15 million) reflected in note 7 to the Consolidated Financial Statements attributable to employee share options and the Performance Share Plans has been included as a capital contribution in financial assets (note 2) in addition to any payments to/from subsidiaries.
10. Section 17 Guarantees Pursuant to the provisions of Section 17, Companies (Amendment) Act, 1986, the Company has guaranteed the liabilities of its wholly-owned subsidiary undertakings and the Oldcastle Finance Company and Oldcastle North America Funding Company general partnerships in the Republic of Ireland for the financial year ended 31 December 2014 and, as a result, such subsidiary undertakings and the general partnerships have been exempted from the filing provisions of Section 7, Companies (Amendment) Act, 1986 and Regulation 20 of the European Communities (Accounts) Regulations, 1993 respectively. Details in relation to other guarantees provided by the Company are provided in the interest-bearing loans and borrowings note (note 23) on page 138 of the notes to the Consolidated Financial Statements.
11. Related Party Transactions The Company has taken advantage of the exemption in FRS 8 Related Party Disclosures not to disclose transactions with wholly-owned subsidiaries.
12. Events after the Balance Sheet Date Details of events after the balance sheet date are provided in note 33 on page 153 of the notes to the Consolidated Financial Statements.
13. Board Approval The Board of Directors approved and authorised for issue the Company Financial Statements on pages 154 to 157 in respect of the year ended 31 December 2014 on 25 February 2015.
CRH 157 Shareholder Information
Dividend payments An interim dividend of 18.5c was paid in respect of Ordinary Shares on 24 October 2014. A final dividend of 44c, if approved at the 2015 Annual General Meeting, will be paid in respect of Ordinary Shares on 12 May 2015 to shareholders on the Register of Members as at the close of business on 6 March 2015. Dividend Withholding Tax (DWT) must be deducted from dividends paid by an Irish resident company, unless a shareholder is entitled to an exemption and has submitted a properly completed exemption form to the Company’s Registrars, Capita Asset Services (the “Registrars”). DWT applies to dividends paid by way of cash or by way of shares under a scrip dividend scheme and is deducted at the standard rate of Income Tax (currently 20%). Non-resident shareholders and certain Irish companies, trusts, pension schemes, investment undertakings and charities may be entitled to claim exemption from DWT. Copies of the exemption form may be obtained from the Registrars. Shareholders should note that DWT will be deducted from dividends in cases where a properly completed form has not been received by the record date for a dividend. Individuals who are resident in the Republic of Ireland for tax purposes are not entitled to an exemption. Shareholders who wish to have their dividend paid direct to a bank account, by electronic funds transfer, should complete the required dividend mandate form and submit it to the Registrars. A copy of the required form can be obtained from the shareholder services section of the CRH website, www.crh.com, under “Equity Investors”. Alternatively, shareholders can contact the Registrars to obtain a mandate form (see contact details below). Tax vouchers will be sent to the shareholder’s registered address under this arrangement. Dividends are generally paid in euro. However, in order to avoid costs to shareholders, dividends are paid in Sterling and US Dollars to shareholders whose shares are not held in the CREST system (see below) and whose address, according to the Share Register, is in the UK and the United States respectively, unless they require otherwise. Dividends in respect of 7% ‘A’ Cumulative Preference Shares are paid half- yearly on 5 April and 5 October. Dividends in respect of 5% Cumulative Preference Shares are paid half-yearly on 15 April and 15 October. Shareholders have the option of taking their dividend in the form of shares under the Company’s Scrip Dividend Scheme.
CREST Transfer of the Company’s shares takes place through the CREST system. Shareholders have the choice of holding their shares in electronic form or in the form of share certificates. Where shares are held in CREST, dividends are automatically paid in euro unless a currency election is made. CREST members should use the facility in CREST to make currency elections. Such elections must be made in respect of entire holdings as partial elections are not permissible.
Stock Exchange listings CRH has a premium listing on the London Stock Exchange (LSE) and a secondary listing on the Irish Stock Exchange (ISE). The Group’s American Depositary Shares (ADSs), each representing one Ordinary Share, are listed on the New York Stock Exchange (NYSE). The ADSs are evidenced by American Depositary Receipts.
158 CRH Shareholder Information | continued
Share price data Electronic communications 2014 2013 Following the introduction of the 2007 Transparency Regulations, and in ISE LSE ISE LSE order to adopt a more environmentally friendly and cost effective approach, the Company provides the Annual Report to shareholders electronically via Share price at 31 December €19.90 £15.44 €18.30 £15.23 the CRH website, www.crh.com, and only sends a printed copy to those Market capitalisation €14.7bn £11.4bn €13.4bn £11.2bn shareholders who specifically request a copy. Shareholders who choose to Share price movement do so can receive other shareholder communications, for example, notices during year: of general meetings and shareholder circulars, electronically. However, shareholders will continue to receive printed proxy forms, dividend - high €21.82 £17.88 €19.30 £16.17 documentation and, if the Company deems it appropriate, other - low €15.86 £12.66 €14.68 £12.15 documentation by post. Shareholders can alter the method by which they receive communications by contacting the Registrars. Shareholdings as at 31 December 2014 Electronic proxy voting Ownership of Ordinary Shares Number of % of Shareholders may lodge a proxy form for the 2015 Annual General Meeting Geographic location* Shares held total electronically by accessing the Registrars’ website as described below. ‘000s CREST members wishing to appoint a proxy via CREST should refer to the CREST Manual and the notes to the Notice of the Annual General Meeting. North America 309,829 41.61 United Kingdom 185,851 24.96 Registrars Europe/Other 125,413 16.85 Retail 87,458 11.75 Enquiries concerning shareholdings should be addressed to the Registrars: Ireland 32,198 4.32 Capita Asset Services Treasury 3,776 0.51 P.O. Box 7117 744,525 100 Dublin 2 Ireland ** This represents a best estimate of the number of shares controlled by fund managers Telephone: +353 (0) 1 553 0050 resident in the geographic regions indicated. Private shareholders are classified as Fax: +353 (0) 1 224 0700 retail above. Website: www.capitaassetservices.com Number of % of Number of % of Shareholders with access to the internet may check their accounts by Holdings Shareholders total Shares held total accessing the Registrars’ website and selecting “Shareholder Portal (Ireland)”. ‘000s This facility allows shareholders to check their shareholdings and dividend payments, register e-mail addresses, appoint proxies electronically and 1 - 1,000 14,973 60.13 4,989 0.67 download standard forms required to initiate changes in details held by the 1,001 - 10,000 8,375 33.63 24,431 3.28 Registrars. Shareholders will need to register for a User ID before using some 10,001 - 100,000 1,152 4.63 31,838 4.28 of the services. 100,001 - 1,000,000 310 1.24 109,383 14.69 Over 1,000,000 93 0.37 573,884 77.08 American Depositary Receipts (ADRs) 24,903 100 744,525 100 The ADR programme is administered by the Bank of New York Mellon and enquiries regarding ADRs should be addressed to: BNY Mellon Shareowner Services Financial calendar P.O. Box 30170 Announcement of final results for 2014 26 February 2015 College Station Ex-dividend date 5 March 2015 TX 77842-3170 U.S.A. Record date for dividend 6 March 2015 Extraordinary General Meeting 19 March 2015 Telephone: Toll Free Number (United States residents): 1-888-269-2377 Latest date for receipt of scrip forms 24 April 2015 International: +1 201-680-6825 E-mail: [email protected] Interim Management Statement 6 May 2015 Website: www.mybnymdr.com Annual General Meeting 7 May 2015 Dividend payment date and first day of dealing in Frequently Asked Questions (FAQ) scrip dividend shares 12 May 2015 The Group’s website contains answers to questions frequently asked by Announcement of interim results for 2015 27 August 2015 shareholders, including questions regarding shareholdings, dividends Interim Management Statement 19 November 2015 payments, electronic communications and shareholder rights. The FAQ can be accessed in the Investors section of the website under “Equity Investors”. Website The Group’s website, www.crh.com, provides the full text of the Annual and Interim Reports, the Annual Report on Form 20-F, which is filed annually with the United States Securities and Exchange Commission, interim management statements and copies of presentations to analysts and investors. News releases are made available, in the “Media” section of the website, immediately after release to the Stock Exchanges.
CRH 159 Management
Executive Directors/ Senior Group Staff Anthony Fitzgerald Mark Lowry Taco van Vroonhoven Company Secretary Group Treasurer Managing Director Managing Director (a.i.) Compliance, Sustainability & Poland Builders Merchants, Albert Manifold Risk Europe Belgium Chief Executive Jim Mintern Jack Golden Ken McKnight Managing Director (a.i.) Christoph Lehrmann Maeve Carton Organisation Development Managing Director Finland Managing Director Finance Director Director Heavyside/Lightside Builders Merchants, Barry Leonard Germany Mark Towe Declan Condren Marc St. Nicolaas Managing Director Chief Executive Officer Group Strategic Financial Managing Director Ukraine Tom Beyers Oldcastle, Inc. Risk Manager Distribution Managing Director Jim Mintern SHAP & Netherlands Neil Colgan Human Resources & Talent Edwin Bouwman Managing Director Roofing Company Secretary Development Chief Financial Officer Russia & Israel Hans Wouda Dan Brennan Heavyside Mariusz Bogacz Financial Director Group HR & Talent Financial Director Development Director John Corbett Distribution South HR & Talent Development Lightside Nicola McCracken Director Khaled Bachir HR Director, Talent David Dillon Chief Operating Officer Management & Reward Pat McCleery Managing Director Performance Improvement Ulrich Paulmann Strategy, Innovation & Director Kees-Jan van ‘t Westeinde Managing Director Development Managing Director Builders Merchants, John McKeon Shutters & Awnings Austria Noel O’Mahony Procurement Director Group Performance & Jean-Luc Bernard Nicolas Weinmann Strategy Director Heavyside West Managing Director Managing Director Construction Accessories Builders Merchants, Philip Wheatley Oliver Mahon Switzerland Group Strategy & Managing Director Dennis Gouka Development Director Managing Director Khaled Bachir Owen Rowley Heras Managing Director Corporate Affairs & Investor Chief Operating Officer Builders Merchants, Relations Hans Welting France Edwin van den Berg Managing Director Mark Cahalane Managing Director Mobile Fencing Laurent Sauvage Group Director, Corporate Benelux Financial Director Affairs Michael Wightman Séamus Lynch Managing Director Asia Frank Heisterkamp Managing Director Cubis Head of Investor Relations Ireland & Spain Ken McKnight Arijan Bakker President Éimear O’Flynn Claus Bering Financial Director Corporate Communications Managing Director Peter Buckley Denmark Distribution Country Director Finance, Tax, Treasury China Urs Sandmeier Emiel Hopmans Alan Connolly Managing Director Managing Director Ee Ming Wong General Manager - Finance Switzerland & Germany DIY Benelux Country Manager China Dan Creedon Francois Demoulin Gijs Graafmans Finance & Performance Managing Director HR & Talent Development Paul Headd Director France Director Country Director India Rossa McCann Sanna Luthala Richard Piekar Head of Group Financial Financial Director Procurement Director Atul Khosla Operations Managing Director Heavyside East Distribution North India Johanna O’Driscoll Head of Group Financial Jim Mintern Taco van Vroonhoven Evaluation & Advisory Managing Director Chief Operating Officer Services Declan Maguire Jan Boon Grainne McKenna Chief Operating Officer Managing Director Head of Group Reporting & Builders Merchants, Analysis Netherlands 160 CRH The Americas Eric Farinha Doug Radabaugh Southeast Chief Financial Officer Chief Financial Officer, East Mark Towe Rob Duke Chief Executive Officer BuildingEnvelope® John Parson President President & Chief Operating Southeast Division Michael O’Driscoll Ted Hathaway Officer, West Chief Financial Officer Chief Executive Officer David Church Jeff Schaffer President Gary Hickman Brian Reilly Executive Vice President, Mid-South Region Senior Vice President Tax & Chief Administrative Officer West Risk Management Northwest Jim Avanzini Chris Madden Michael Lynch Chief Operating Officer Executive Vice President, Jim Gauger Executive Vice President Architectural Glass & Fleet Operations President Development Storefronts Northwest Division Northeast Rick Mergens Mary Carol Witry Craig Mayfield Executive Vice President Chief Operating Officer Dan Stover President Group Performance Engineered Glazing President East Region Systems Northeast Division Bill Miller Ricardo Linares Vice President & General Distribution Christian Zimmermann President Counsel President West Region Robert Feury, Jr. New England North Mark Schack Chief Executive Officer Mountain West Executive Vice President John Cooney, Jr. Talent Management Frank Furia President Scott Parson Chief Financial Officer New York Region President Products Mountain West Division John McLaughlin Sean O’Sullivan Keith Haas President President Randy Anderson Chief Executive Officer Exterior Products Tilcon New Jersey President Staker Parson Paul Valentine Ron Pilla Central North/Rocky Mountain Chief Financial Officer President Interior Products John Powers Michael Kurz Dan Krehnbrink President President Senior Vice President South America Central Division Staker Parson South Development & Strategy Juan Carlos Girotti Ty Nofziger Rich Umbel John Kemp Managing Director President President President CRH Sudamericana & Shelly Southwest Region Building Solutions Canteras Cerro Negro Gregg Campbell Bob Rowberry Architectural Products Bernardo Alamos President President Managing Director Michigan Paving & Materials Jack B. Parson Tim Ortman Vidrios Dell Orto & South President American Glass Group Mid-Atlantic Great Plains
Mike Schaeffer Federico Ferro Dan Cooperrider Craig Lamberty Chief Financial Officer Managing Director President President Cormela Mid-Atlantic Division Great Plains Division Eoin Lehane President North America Mark Snyder Earl Losier National Group President President Materials Mid-Atlantic Region KS/MO & OK/AR Regions Peter Kiley Executive Vice President Randy Lake Willie Crane Raymond Lane Strategic Sales Chief Executive Officer President President AMG – North TN/MS Regions Precast Charlie Brown Chief Financial Officer Kevin Bragg Craig Lamberty Dave Steevens President President President Kirk Randolph AMG – South Midwest Region Senior Vice President Bob Quinn Development Southwest Chief Administrative Officer John Keating Nathan Creech President & Chief Operating President Southwest Division Officer, East CRH 161 Principal Subsidiary Undertakings as at 31 December 2014
Incorporated and operating in % held Products and services
Europe Heavyside
Belgium VVM N.V. 100 Cement transport and trading, readymixed concrete, clinker grinding Douterloigne N.V. 100 Concrete floor elements, pavers and blocks Ergon N.V. 100 Precast concrete and structural elements Stradus Aqua N.V. 100 Concrete paving, sewerage and water treatment Oeterbeton N.V. 100 Precast concrete Prefaco N.V. 100 Precast concrete structural elements Remacle S.A. 100 Precast concrete products Schelfhout N.V. 100 Precast concrete wall elements Stradus Infra N.V. 100 Concrete paving and landscaping products Marlux N.V. 100 Concrete paving and landscaping products Britain & Anderton Concrete Products Limited 100 Precast and pre-stressed concrete products Northern Northstone (NI) Limited 100 Aggregates, readymixed concrete, mortar, coated macadam, rooftiles, Ireland (including Farrans, Ready Use Concrete, R.J. building and civil engineering contracting Maxwell & Son, Scott (Toomebridge) Limited) Premier Cement Limited 100 Marketing and distribution of cement Forticrete Limited 100 Concrete masonry products and rooftiles Ibstock Brick Limited 100 Clay brick manufacturer Supreme Concrete Limited 100 Concrete fencing, lintels and floorbeams Denmark Betongruppen RBR A/S 100 Concrete paving manufacturer CRH Concrete A/S 100 Structural concrete products Finland Finnsementti Oy 100 Cement Rudus Oy 100 Aggregates, readymixed concrete and concrete products France Béton Moulé Industriel S.A. 99.98 Precast concrete products L'industrielle du Béton S.A.* 100 Structural concrete products Marlux 100 Concrete paving manufacturer Stradal 100 Utility and infrastructural concrete products Germany CRH Clay Solutions GmbH* 100 Clay brick, pavers and rooftiles EHL AG 100 Concrete paving and landscape walling products Hungary Ferrobeton Beton-és Vasbetonelem gyártó Zrt. 100 Precast concrete structural elements Ireland Irish Cement Limited 100 Cement Clogrennane Lime Limited 100 Burnt and hydrated lime Roadstone Wood Limited 100 Aggregates, readymixed concrete, mortar, coated macadam, concrete blocks and pipes, asphalt, agricultural and chemical limestone and contract surfacing Netherlands Cementbouw B.V. 100 Cement transport and trading, readymixed concrete and aggregates Calduran Kalkzandsteen B.V. 100 Sand-lime bricks and building elements CRH Kleiwaren Beheer B.V. 100 Clay brick manufacturer CRH Structural Concrete B.V. 100 Precast concrete structural elements Dycore B.V. 100 Concrete flooring elements Struyk Verwo Groep B.V. 100 Concrete paving products Poland Bosta Beton Sp. z o.o. 90.30 Readymixed concrete CRH Klinkier Sp. z o.o. 100 Clay brick manufacturer Drogomex Sp. z o.o.* 99.94 Asphalt and contract surfacing Ergon Poland Sp. z o.o. 100 Structural concrete products . Grupa Ozarów S.A. 100 Cement Grupa Prefabet S.A.* 100 Concrete products Masfalt Sp. z o.o.* 100 Asphalt and contract surfacing O.K.S.M. S.A. 100 Aggregates Polbruk S.A. 100 Readymixed concrete and concrete paving Trzuskawica S.A. 99.95 Production of lime and lime products Romania Ferrobeton Romania SRL 100 Structural concrete products Elpreco S.A. 100 Architectural concrete products Slovakia Premac, spol. s.r.o. 100 Concrete paving and floor elements Spain Beton Catalan S.A. 100 Readymixed concrete Cementos Lemona S.A. 98.75 Cement
162 CRH Incorporated and operating in % held Products and services
Europe Heavyside | continued
Switzerland JURA-Holding AG 100 Cement, aggregates and readymixed concrete Element AG Schweiz 100 Prefabricated structural concrete elements Ukraine LLC Cement* 51 Cement and clinker grinding PJSC Mykolaivcement 99.27 Cement Podilsky Cement PJSC 99.60 Cement
Europe Lightside
Belgium Plakabeton N.V. 100 Construction accessories Britain & Anchor Bay Construction Products* 100 Construction accessories Northern Ancon Limited 100 Construction accessories Ireland CRH Fencing & Security Group (UK) Limited 100 Security fencing Cubis 100 Supplier of access chambers and ducting products Security Windows Shutters Limited 100 Physical security, industrial and garage doors, roofing systems France Heras Clôture S.A.R.L. 100 Temporary fencing Plaka Group France S.A.S. 100 Construction accessories Germany Alulux GmbH* 100 Roller shutter and awning systems ERHARDT Markisenbau GmbH* 100 Roller shutter and awning systems Halfen GmbH 100 Construction accessories Hammerl GmbH 100 Construction accessories Heras-Adronit GmbH 100 Security fencing and access control Reuss-Seifert GmbH 100 Construction accessories Ireland Plaka Ireland Limited* 100 Construction accessories Italy Halfen S.R.L., Società Unipersonale* 100 Construction accessories Netherlands Aluminium Verkoop Zuid B.V. 100 Roller shutter and awning systems Heras B.V. 100 Security fencing and perimeter protection Mavotrans B.V. 100 Construction accessories Norway Halfen AS* 100 Construction accessories Spain Plakabeton S.L.U. 100 Construction accessories Sweden Heras Stängsel AB* 100 Security fencing Switzerland F.J. Aschwanden AG* 100 Construction accessories
Europe Distribution
Austria Quester Baustoffhandel GmbH 100 Builders merchants Belgium Lambrechts N.V. 100 Builders merchants Sax Sanitair N.V. 75 Sanitary ware, heating and plumbing Schrauwen Sanitair en Verwarming N.V. 100 Sanitary ware, heating and plumbing Van Neerbos België N.V. 100 DIY stores France CRH Ile de France Distribution* 100 Builders merchants CRH TP Distribution 100 Builders merchants CRH Normandie Distribution 100 Builders merchants Germany BauKing AG 100 Builders merchants, DIY stores Andreas Paulsen GmbH 100 Sanitary ware, heating and plumbing Netherlands CRH Bouwmaten B.V. 100 Cash & Carry building materials CRH Bouwmaterialenhandel B.V. 100 Builders merchants NVB Ubbens Bouwstoffen B.V. 100 Builders merchants Royal Roofing Materials B.V. 100 Roofing materials merchant Stoel van Klaveren Bouwstoffen B.V. 100 Builders merchants Van Neerbos Bouwmaterialen B.V. 100 Builders merchants Van Neerbos Bouwmarkten B.V. 100 DIY stores Wij©k's B.V. 100 Builders merchants Switzerland BR Bauhandel AG (trading as BauBedarf and Richner) 100 Builders merchants, sanitary ware and ceramic tiles Gétaz Romang Holding SA (trading as Gétaz 100 Builders merchants Romang and Miauton) Regusci Reco S.A. (trading as Regusci and Reco) 100 Builders merchants
CRH 163 Principal Subsidiary Undertakings | continued
Incorporated and operating in % held Products and services
Americas Materials
United States Oldcastle Materials, Inc. 100 Holding company APAC Holdings, Inc. and Subsidiaries 100 Aggregates, asphalt, readymixed concrete and related construction activities Callanan Industries, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities CPM Development Corporation 100 Aggregates, asphalt, readymixed concrete, prestressed concrete and related construction activities Dolomite Products Company, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Eugene Sand Construction, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Evans Construction Company 100 Aggregates, asphalt, readymixed concrete and related construction activities Hills Materials Company 100 Aggregates, asphalt, readymixed concrete and related construction activities Michigan Paving and Materials Company 100 Aggregates, asphalt and related construction activities Mountain Enterprises, Inc. 100 Aggregates, asphalt and related construction activities OMG Midwest, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Preferred Materials Inc. 100 Aggregates, asphalt, readymixed concrete, aggregates distribution and related construction activities Oldcastle SW Group, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Pennsy Supply, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Pike Industries, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities P.J. Keating Company 100 Aggregates, asphalt and related construction activities Staker & Parson Companies 100 Aggregates, asphalt, readymixed concrete and related construction activities The Shelly Company 100 Aggregates, asphalt, readymixed concrete and related construction activities Tilcon Connecticut, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Tilcon New York, Inc. 100 Aggregates, asphalt and related construction activities Trap Rock Industries, LLC* 60 Aggregates, asphalt and related construction activities West Virginia Paving, Inc. 100 Aggregates, asphalt and related construction activities
164 CRH Incorporated and operating in % held Products and services
Americas Products & Distribution
Argentina CRH Sudamericana S.A. 100 Holding company Canteras Cerro Negro S.A. 99.98 Clay rooftiles, wall tiles and floor tiles Cormela S.A. 100 Clay blocks Superglass S.A. 100 Fabricated and tempered glass products Canada Building Products Oldcastle BuildingEnvelope® Canada, Inc. 100 Custom fabricated and tempered glass products and curtain wall Oldcastle Building Products Canada, Inc. 100 Masonry, paving and retaining walls, utility boxes and trenches (trading as Décor Precast, Expocrete Concrete Products, Groupe Permacon, Oldcastle Enclosure Solutions and Transpavé) Chile Vidrios Dell Orto, S.A. 99.90 Fabricated and tempered glass products Comercial Duomo Limitada 99.99 Wholesaler and retailer of specialised building products United States Americas Products & Distribution, Inc. 100 Holding company CRH America, Inc. 100 Holding company Oldcastle, Inc. 100 Holding company Building Products Oldcastle Architectural, Inc. 100 Holding company Oldcastle Building Products, Inc. 100 Holding company Big River Industries, Inc. 100 Lightweight aggregates Bonsal American, Inc. 100 Premixed cement and asphalt products Glen-Gery Corporation 100 Clay bricks Merchants Metals, Inc. 100 Fabrication and distribution of fencing products Meadow Burke, LLC 100 Concrete accessories Oldcastle APG Northeast, Inc. (trading principally 100 Specialty masonry, hardscape and patio products as Anchor Concrete Products and Trenwyth Industries) Oldcastle APG South, Inc. (trading principally 100 Specialty masonry, hardscape and patio products as Adams Products, Georgia Masonry Supply, Northfield Block Company and Oldcastle Coastal) Oldcastle APG West, Inc. (trading principally 100 Specialty masonry and stone products, hardscape and patio products as Amcor Masonry Products, Central Pre-Mix Concrete Products, Texas Masonry Products, Miller Rhino Materials, Sierra Building Products and Superlite Block) Oldcastle BuildingEnvelope®, Inc. 100 Custom fabricated architectural glass Oldcastle Lawn & Garden, Inc. 100 Patio products, bagged stone, mulch and stone Oldcastle Precast, Inc. 100 Precast concrete products, concrete pipe, prestressed plank and structural elements Oldcastle Surfaces, Inc. 100 Custom fabrication and installation of countertops Distribution Oldcastle Distribution, Inc. 100 Holding company Allied Building Products Corp. 100 Distribution of roofing, siding and related products, wallboard, metal studs, acoustical tile and grid
CRH 165 Principal Equity Accounted Investments as at 31 December 2014
Incorporated and operating in % held Products and services
Europe Heavyside
China Jilin Yatai Group Building Materials Investment 26 Cement Company Limited* India My Home Industries Limited 50 Cement Ireland Kemek Limited* 50 Commercial explosives Israel Mashav Initiating and Development Limited 25 Cement
Europe Distribution
France Doras S.A. 56.95 Builders merchants Samse S.A.* 21.13 Builders merchants and DIY stores Netherlands Bouwmaterialenhandel de Schelde B.V. 50 DIY stores Intergamma B.V. 48.57 DIY franchisor Portugal Modelo Distribuição de Materials de Construção S.A.* 50 DIY stores
Americas Materials
United States American Cement Company, LLC* 50 Cement Boxley Aggregates of West Virginia, LLC* 50 Aggregates Southside Materials, LLC* 50 Aggregates Cadillac Asphalt, LLC* 50 Asphalt Piedmont Asphalt, LLC* 50 Asphalt American Asphalt of West Virginia, LLC* 50 Asphalt and related construction activities HMA Concrete, LLC* 50 Readymixed concrete Buckeye Ready Mix, LLC* 45 Readymixed concrete
* Audited by firms other than Ernst & Young
Pursuant to Section 16 of the Companies Act, 1986, a full list of subsidiaries, joint ventures and associated undertakings will be annexed to the Company’s Annual Return to be filed in the Companies Registration Office in Ireland.
166 CRH Group Financial Summary (Figures prepared in accordance with IFRS) Restated Restated Restated Restated Restated Restated Restated Restated 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 €m €m €m €m €m €m €m €m €m €m
Revenue 13,831 17,836 19,916 19,715 16,278 16,112 17,374 18,084 18,031 18,912
EBITDA (as defined)* 1,845 2,326 2,704 2,478 1,654 1,487 1,543 1,563 1,475 1,641 Group operating profit 1,311 1,724 1,973 1,704 861 630 811 805 100 917 Profit on disposals 19 36 57 68 25 54 53 230 26 77 Profit before finance costs 1,330 1,760 2,030 1,772 886 684 864 1,035 126 994 Net finance costs (funding/cash) (135) (221) (282) (324) (263) (211) (223) (256) (249) (246) Other financial expense (10) (15) (7) (6) (27) (29) (28) (49) (48) (42) Share of equity accounted investments' profit/(loss) 75 60 138 160 117 69 87 (84) (44) 55 Profit/(loss) before tax 1,260 1,584 1,879 1,602 713 513 700 646 (215) 761 Income tax expense (254) (360) (441) (340) (115) (74) (103) (106) (80) (177) Group profit/(loss) for the financial year 1,006 1,224 1,438 1,262 598 439 597 540 (295) 584
Employment of capital Non-current and current assets Property, plant and equipment 6,275 6,954 7,503 7,904 7,570 7,939 8,008 7,971 7,539 7,422 Intangible assets 2,005 2,713 3,424 3,772 3,754 3,960 4,148 4,267 3,911 4,173 Equity accounted investments/other financial assets (a) 1,126 1,169 1,448 1,969 2,204 2,265 2,107 1,456 1,363 1,352 Net working capital (b) 1,864 2,314 2,326 2,468 1,838 1,799 2,004 2,078 2,016 2,010 Other liabilities - current and non-current (c) (1,226) (1,070) (836) (1,078) (1,051) (1,056) (1,323) (1,376) (1,111) (1,418) Assets and liabilities held for sale (d) ------143 - 285 Total 10,044 12,080 13,865 15,035 14,315 14,907 14,944 14,539 13,718 13,824
Capital and reserves excluding preference share capital 6,194 7,062 7,953 8,086 9,636 10,327 10,508 10,552 9,661 10,176 Preference share capital 1 1 1 1 1 1 1 1 1 1 Non-controlling interests 25 31 37 38 41 50 41 36 24 21 Net deferred income tax liability 647 742 875 972 1,028 1,149 1,059 1,041 1,059 1,134 Net debt (e) 3,177 4,244 4,999 5,938 3,609 3,380 3,335 2,909 2,973 2,492 Total 10,044 12,080 13,865 15,035 14,315 14,907 14,944 14,539 13,718 13,824
Purchase of property, plant and equipment 614 777 956 955 487 418 507 544 497 435 Acquisitions and investments 1,298 2,311 2,227 1,072 458 567 610 548 576 188 Total 1,912 3,088 3,183 2,027 945 985 1,117 1,092 1,073 623
Depreciation of property, plant and equipment 525 577 696 717 709 711 673 686 671 631 Amortisation of intangible assets 9 25 35 43 43 44 38 44 54 44 Impairment of property, plant and equipment and intangible assets - - - 14 41 102 21 28 650 49 Earnings per share after amortisation of intangible assets (cent) (f) 168.3 202.2 236.9 210.2 88.3 61.3 82.6 74.6 (40.6) 78.9 Earnings per share before amortisation of intangible assets (cent) (f) 170.0 206.5 242.7 217.4 96.3 79.9 88.6 80.6 (33.2) 84.9 Dividend per share (cent) (f) 35.17 46.89 61.31 62.22 62.50 62.50 62.50 62.50 62.50 62.50 Cash earnings per share (cent) (f), (g) 268.9 332.0 372.3 357.4 222.9 203.2 201.4 199.8 162.4 177.1 Dividend cover (times) (h) 4.8 4.3 3.9 3.4 1.4 1.0 1.3 1.2 n/a 1.3 Notes to IFRS financial summary data The Group financial summary for 2005 to 2012 has been restated for the impact of IFRS 11 Joint Arrangements. The 2012 results also reflect the change in accounting as required by IAS 19 Employee Benefits. (a) Represents the sum of equity accounted investments’ and other financial assets. (b) Represents the sum of inventories and trade and other receivables (included in current assets) less trade and other payables (included in current liabilities). (c) Represents the sum of current income tax liabilities, current and non-current provisions for liabilities, non-current other payables and retirement benefit obligations less the sum of current income tax recoverable and non-current other receivables. (d) Represents the sum of assets and liabilities reclassified as held for sale, excluding cash and cash equivalents reclassified which is included under net debt (see note (e) below). (e) Represents the sum of current and non-current interest-bearing loans and borrowings and derivative financial instrument liabilities less the sum of liquid investments, cash and cash equivalents (including cash reclassified as held for sale) and current and non-current derivative financial instrument assets. (f) Per share amounts for restated 2005 to 2008 have been restated for the bonus element of the Rights Issue in March 2009. (g) Cash earnings per share represents profit attributable to equity holders of the Company less preference dividends paid plus depreciation of property, plant and equipment, amortisation of intangible assets and, where applicable, asset impairments divided by the average number of Ordinary Shares outstanding for the year. (h) Represents earnings per Ordinary Share divided by dividends per Ordinary Share. * EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ result after tax. CRH 167 Index
A D Accounting policies 108 Debt, Analysis of net (note 20) 134 Foreign currency translations 114 Acquisitions Committee 68 Deferred income tax Frequently asked questions 159 American Depositary Receipts 159 - Expense (note 10) 110, 125 Annual General Meeting 71 - Assets and liabilities (note 26) 110, 142 G Audit Committee 61 Depreciation Gender diversity 14, 57 Auditors (Directors’ Report) 98 - Cost analysis (note 2) 118 Going concern 71 Auditor’s remuneration (note 3) 64, 119 - Property, plant and equipment Governance 54 Auditor’s Report, Independent 101 (note 13) 110, 127 Greenhouse gas emissions 14, 98 - Segment analysis (note 1) 116 Guarantees (note 23; note 10 to B Derivative financial instruments Company Balance Sheet ) 138, 157 (note 24) 113, 139 Balance sheet Directors’ emoluments and interests H - Company 154 (note 6) 121 Health and safety 17 - Consolidated 105 Directors’ interests in share capital 85 Heavyside 30 Board agendas 60 Directors’ remuneration report 72 Board approval of financial Directors’ Report 96 statements (note 34) 153 I Directors’ responsibilities, Statement of 100 Board Committees 60 Income Statement, Consolidated 104 Directors’ share options 76, 83 Board evaluation 58 Income tax expense (note 10) 110, 125 Distribution 35, 46 Board Meetings 59, 68 Independent auditors’ report 101 Dividend payments Board of Directors 51, 56, 98 (shareholder information) 96, 158 Intangible assets (note 14) 112, 128 Board responsibilities 56 Dividend per Share 5 Inventories (note 16) 113, 132 Business and non-current asset Dividends (note 11) 114, 126 Investor relations activities 70 disposals (note 4) 120 Business combinations (note 30) 112, 149 E K Business model 10 Earnings per Ordinary Share Key components of 2014 Business performance review 22 (note 12) 126 performance 23 Employees, average number (note 5) 121 Key financial figures 2014 5 C Employment costs (note 5) 121 KPIs, financial 14 Capital and financial risk End-use KPIs, non-financial 14 management (note 21) 135 - Americas Distribution 27 Cash and cash equivalents (note 22) 113,137 - Americas Materials 27 L Cash flow, operating 14, 24 - Americas Products 27 Leases, commitments under Cash flow statement, Consolidated 107 operating and finance (note 29) 113, 148 - Europe Distribution 26 Cash flow, summarised 24 Lightside 33 - Europe Heavyside 26 Chairman’s Introduction 2 Listing rule 9.8.4C 99 - Europe Lightside 26 Changes in Equity, Consolidated Loans and borrowings, interest- Statement of 106 Equity accounted investments’ bearing (note 23) 113, 138 profit/(loss), share of (note 9) 124 Chief Executive’s Introduction 4 Events after the balance sheet date Communications with shareholders 70 (note 33) 153 M Company Secretary 58 Exchange rates 114 Management 160 Compliance and ethics 69 Materials 40
Comprehensive Income, F Measuring performance 14 Consolidated Statement of 104 Finance Committee 69 Memorandum and Articles Consolidated Financial Statements 104 of Association 71 Finance costs and finance income Contingent liabilities (note 32) 152 (note 8) 124 Corporate governance report 54 Finance Director’s Introduction 22 N Cost analysis (note 2) 118 Financial assets (note 15) 113, 131 Nomination and Corporate Governance Committee 66 CREST 158 Financial calendar 159 CRH in Asia 48 Notes on Consolidated Financial Financial statements, Consolidated 104 Statements 115-153 CRH in Europe 28 Financial summary, CRH in the Americas 39 Group (2005-2014) 167
168 CRH Shareholder information Shareholder communication Share pricedata - Employees(note7) - Directors Share options Share capitalandreserves (note28) Share-based payments(note7) Senior IndependentDirector Segment information(note1) Sector exposure andend-use S Risks anduncertainties control Risk managementandinternal onnetassets Return (note 27) Retirement benefitobligations Reserves (milliontonnes) Remuneration Committee Related partytransactions(note31) Regulatory information Registrars R Proxy voting,electronic Provisions forliabilities(note25) (note 13) Property, plantandequipment Profit ondisposals(note4) Products Principal subsidiaryundertakings investments Principal equityaccounted obligations (note27) Pensions, retirement benefit P - Europe Lightside - Europe Heavyside - Europe Distribution - AmericasProducts - AmericasMaterials - AmericasDistribution Operational Reviewsand2014results Operating profit disclosures (note3) Operating leases(note29) Operating costs(note2) O
32, 40,49 109, 143 113, 148 114, 147 111, 121 111, 115 68, 72 118 158 159 121 152 159 159 141 127 120 162 166 143 119 96 69 14 97 43 33 30 35 43 40 46 70 83 58 26 (note 19) liabilities, movementduringyear Working capitalandprovision for Website W - Europe Lightside - Europe Heavyside - AmericasProducts - AmericasMaterials Volumes, annualisedproduction V (note 17) Trade andotherreceivables Trade andotherpayables(note18) Total Shareholder(TSR) Return T Sustainability andgovernance Substantial holdings Subsidiary undertakings,principal Strategy review Strategic report Stock Exchangelistings responsibilities Statement ofDirectors’ Income, Consolidated Statement ofComprehensive Consolidated Statement ofChangesinEquity, 31 December2014 Shareholdings asat Snapshot 2014 109, 133 113, 132 56, 158 71, 159 14, 87 133 162 100 104 106 159 17 70 26 26 26 27 27 4 7
Designed and produced by Lunt McIntyre. Printed by PrintRun. The International Building Materials Group
CRH plc Belgard Castle Clondalkin Dublin 22 Ireland Telephone: +353 1 404 1000 Fax: +353 1 404 1007 E-mail: [email protected] Website: www.crh.com Front cover: The Rehberger bridge, also known Registered Office as the “Slinky Springs to Fame” bridge-sculpture, 42 Fitzwilliam Square spans the Rhine-Herne canal in Oberhausen, Dublin 2 Germany. It consists of 496 spiral rings, each Ireland with a five metre diameter, suspended ten metres Telephone: +353 1 634 4340 above the canal for a total length of 406 metres. Fax: +353 1 676 5013 HALFEN, a CRH Europe Lightside business, E-mail: [email protected] designed and engineered a solution consisting of serrated steel channels to connect the guardrail to the top of the concrete slab, and the spiral underneath the slab, as part of the same ® CRH is a registered element. This clever design allowed the project to trade mark of CRH plc. be constructed efficiently, safely and on time.